anthony t. hunter, justin c. rammell, utah bar #11675 … · an owner shall be deemed to have...
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ANTHONY T. HUNTER, Utah Bar #11675 Attorney for J.P. Furlong Co. 4715 West Central Wichita, Kansas 67212 Email: [email protected]
JUSTIN C. RAMMELL, Utah Bar #12210 Attorneys for J.P. Furlong Co. 7410 S. Creek Rd., Suite 204 Sandy, Utah 84093 Telephone: (801) 432-0632 Facsimile: (888) 712-5274 Email: [email protected]
IN THE UTAH SUPREME COURT
J.P. FURLONG CO., ) DOCKETING STATEMENT Petitioner/Appellant )
) v. )
) BOARD OF OIL, GAS AND MINING, ) Appeal No. 20150620-SC DEPT. OF NATURAL RESOURCES, ) Agency Docket No. 2015-013 Respondent/Appellee. ) Agency Cause No. 139-130
This appeal is from a final Amended Findings of Fact, Conclusions of Law and Order, dated
July 28, 2015, of the Board of Oil, Gas and Mining, Department of Natural Resources, State
of Utah (the “Amended Order”). Petitioner/appellant J.P. Furlong Co. (“Furlong”) submits
the following in accordance with the requirements set forth in UT. R. APP. P. 9:
I. APPELLATE JURISDICTION (UT. R. APP. P. 9(c)(2)): This Court has
jurisdiction in this matter pursuant to UTAH CODE ANN. §§63G-4-401(3)(a), 63G-4-403(1),
78A-3-102(3)(e)(iv) and UT. R. APP. P. 14(a).
II. DATE OF ENTRY OF THE FINAL JUDGMENT OR ORDER FROM
WHICH THE APPEAL IS TAKEN (UT. R. APP. P. 9(c)(2)(i)): Amended Findings of Fact,
Conclusions of Law and Order, dated July 28, 2015, of the Board of Oil, Gas and Mining,
Department of Natural Resources, State of Utah.
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III. DATE OF FILING OF PETITION FOR REVIEW (UT. R. APP. P. 9(c)(2)(ii)
and (iii)): August 3, 2015. No extensions were filed on this matter.
IV. ANY REQUESTS FOR RECONSIDERATION PURSUANT TO UTAH CODE
ANN. §63G-4-302, THE DATE OF SUCH REQUEST, AND THE DATE OF
ORDER DISPOSING OF SUCH REQUEST (See, e.g ., UT. R. APP. P.
9(c)(2)(iv)(regarding post-judgment motions)): On August 3, 2015, EP Energy E&P
Company, L.P.’s (“EPE”) filed their Petition for Reconsideration of Amended Findings of Fact and
Conclusions of Law and Order pursuant to the provisions of UTAH CODE ANN. §63G-4-302. On
August 6, 2015, Petitioner filed their Response to Petition for Reconsideration of Amended Findings of
Fact, Conclusions of Law and Order. On August 14, 2015, JP Furlong sought a stay of these
proceedings pending outcome of the reconsideration request, with such stay being granted on
August 26, 2015. On October 13, 2015, the Board of Oil Gas and Mining, Department of
Natural Resources, entered its Order Resolving August 3, 2015 Petition for Reconsideration, which
effectively denied EPE’s request for reconsideration. On November 4, 2015, JP Furlong
notified this Court of the reconsideration decision by the Board and the stay was lifted.
V. ISSUE(S) PRESENTED FOR REVIEW AND STANDARD(S) OF APPELLATE REVIEW (UT. R. APP. P. 9(c)(7)):
ISSUE I: Did the Board erroneously apply Utah law when it failed to “balance the interests of competing parties” by imposing EPE’s entire proposed JOA onto non-operator Furlong, under the threat of a non-consent penalty?
PRESERVATION: In response to the Board of Oil Gas and Mining’s (the “Board”) Request
for Agency Action, filed March 15, 2015 (the “Request”), Furlong asked that the Board pool its
interest and adopt terms governing future operations, including certain terms of EPE’s
proposed Joint Operating Agreement (“JOA”), Furling’s requested changes, and other provisions
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suggested at the hearing held on Wednesday, April 22, 2015, at 1:20 p.m. in the Moab City
Council Chambers in Moab, Utah (the “Hearing”). At the conclusion of the Hearing, the
Board indicated its consideration of testimony presented at the hearing by Furlong and
Furlong’s proposed edits and amendments, and acknowledged that a legitimate disagreement
existed and Furlong’s proposed terms may be reasonable under certain circumstances;
however, it nonetheless found that the particular facts of this case dictated an adoption of
EPE’s proposed JOA in its entirety as “just and reasonable.” The Board found that EPE’s
proposed JOA was appropriate to govern the relationship between EPE and Furlong, Argo
and Sanderson as Non-Operators as to the Neihart 2-2C5 Well and Drilling Unit.
STANDARD OF APPELLATE REVIEW (UT. R. APP. P. 9(c)(4)), Advisory
Committee Note): “The appellate court shall grant relief only if, on the basis of the agency’s
record, it determines that a person seeking judicial review has been substantially prejudiced by
any of the following: … (d) the agency had erroneously interpreted or applied the law; …”
UTAH CODE ANN. §63G-4-403(4)(d).
[S]ubsection (4)(d) does not imply a standard of review. While that provision empowers courts to grant relief when an agency commits an ‘error’ in interpreting or applying the law, the term ‘erroneous’ in this context does not imply a standard of review. Rather, the term simply means ‘mistaken,’ indicating that we may grant relief when an agency misinterpreted or misapplied the law. … For this category of agency actions, we are free to apply our traditional approach for selecting an appropriate standard of review. … the applicable standard of review will depend on the nature of the agency action and whether it can be characterized as a question of law, a question of fact, or a mixed question of law and fact.
Murray v. Utah Labor Com’n, 2013 UT 38, ¶¶ 21-22, 308 P.3d 461 (footnotes omitted). “Mixed
questions ‘involv[e] application of a legal standard to a set of facts unique to a particular case.’
Indeed, in the agency context, we have stated that we ‘use[ ] the terms mixed question of fact
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and law and application of the law interchangeably.’ Accordingly, [a] claim that the
Commission misapplied the law to the facts of his case presents a traditional mixed question
of law and fact.” Id. (internal citations and footnotes omitted). However, “[w]e review the
Board’s statutory construction of the … pooling provisions of the Oil and Gas Conservation
Act under a correction of error standard, granting the board no deference.” Hegarty v. Board of
Oil, Gas, and Mining, Department of Natural Resources, 2002 UT 82, ¶ 17, 57 P.3d 1042; see Cowling
v. Bd. Of Oil, Gas & Mining, 830 P.2d 220, 224 (Utah 1991).
DETERMINATIVE STATUTES, RULES AND/OR CASES (UT. R. APP. P.
9(c)(4), Advisory Committee Note): UTAH CODE ANN. §40-6-6.5 states as follows:
(1) Two or more owners within a drilling unit may bring together their interests for the development and operation of the drilling unit.
(2) (a) In the absence of a written agreement for pooling, the board may enter an order pooling all interests in the drilling unit for the development and operation of the drilling unit. (b) The order shall be made upon terms and conditions that are just and reasonable. (c) The board may adopt terms appearing in an operating agreement: (i) for the drilling unit that is in effect between consenting owners; (ii) submitted by any party to the proceeding; or (iii) submitted by its own motion.
UTAH ADMIN. CODE RULE R649-2-9.1 states as follows:
An owner shall be deemed to have refused to agree to bear his proportionate share of the costs of the drilling and operation of a well under 40-6-6.5 if: 1.1 The operator of the proposed well has, in good faith, attempted to reach agreement with such owner for the leasing of the owner’s mineral interest or for that owner’s voluntary participation in the drilling of the well. 1.2 The owner and the operator have been unable to agree upon terms for the leasing of the owner’s interest or for the owner’s participation in the drilling of the well.
Under Harken Southwest Corp. v. Board of Oil, Gas and Mining, it states as follows:
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[A]n administrative presumption … must satisfy a test of logical probability. See Utah Code Ann. §63-46b-16(4)(h)(iv)(requiring appellate court to grant relief from arbitrary and capricious agency action). In other words, “a presumption adopted and applied by the Board must rest on a sound factual connection between the proved and inferred facts. NLRB v. Baptist Hosp., Inc., 442 U.S. 773, 787, 99 S.Ct. 2598, 2606, 61 L.Ed.2d 251 (1979). See generally, 1 Clifford S. Fishman, Jones on Evidence §4:56, at 391 (7th ed. 1992)(discussing validity of administrative presumptions).
Ibid., 920 P.2d 1176, 1179 (Utah 1996).
ISSUE II: Does substantial evidence support the Board’s Amended Order implementing EPE’s entire proposed JOA, without making a single change, and without citing facts in evidence to support its conclusion that the terms were “justified, fair and reasonable and are appropriate...[?]” (See Final Order, Findings of Fact ¶ 19)?
PRESERVATION: In response to the Board’s Request, Furlong asked that the Board pool
its interest and adopt terms governing future operations, including certain terms of EPE’s
proposed JOA, Furling’s requested changes, and other provisions suggested at the Hearing.
At the conclusion of the Hearing, the Board indicated its consideration of testimony presented
at the hearing by Furlong and Furlong’s proposed edits and amendments, and acknowledged
that a legitimate disagreement existed and Furlong’s proposed terms may be reasonable under
certain circumstances; however, it nonetheless found that the particular facts of this case
dictated an adoption of EPE’s proposed JOA in its entirety as “just and reasonable.” The
Board found that EPE’s proposed JOA was appropriate to govern the relationship between
EPE and Furlong, Argo and Sanderson as Non-Operators as to the Neihart 2-2C5 Well and
Drilling Unit.
STANDARD OF APPELLATE REVIEW (UT. R. APP. P. 9(c)(4)), Advisory
Committee Note): “The appellate court shall grant relief only if, on the basis of the agency’s
record, it determines that a person seeking judicial review has been substantially prejudiced by
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any of the following: … (g) the agency action is based upon a determination of fact, made or
implied by the agency, that is not supported by substantial evidence when viewed in light of
the whole record before the court;…” UTAH CODE ANN. §63G-4-403(4)(g).
Certain provisions of section 63G-4-403(4) … imply a standard of review by the way in which the Legislature characterized the agency action. Section 63G-4-403(4)(g), for example, falls into this category. That provision allows us to grant relief for ‘agency action [that] is based upon a determination of fact … that is not supported by substantial evidence. While this provision does not explicitly require a certain standard of review, it characterizes the agency action in such a way that implies a ‘substantial evidence’ standard. This is because we can grant relief under this provision only after reviewing the agency’s determination of fact for a lack of substantial evidence.
Murray v. Utah Labor Com’n, 2013 UT 38, ¶ 19, 308 P.3d 461. Under Harken Southwest Corp. v.
Board of Oil, Gas and Mining, the Court found that, “[s]ubstantial evidence is ‘ “that quantum
and quality of relevant evidence that is adequate to convince a reasonable mind to support
a conclusion.”’” Ibid., 920 P.2d 1176, 1180 (Utah 1996), citing U.S. West Communications, Inc.
v. Public Serv. Comm’n, 882 P.2dc 141, 146 (Utah 1994)(quoting Boston First Nat’l Bank v. Salt
Lake County Bd. Of Equalization, 799 P.2d 1163, 1165 (Utah 1990)). “This standard does not
require or specify a quantity of evidence but requires only such relevant evidence as a
reasonable mind might accept as adequate to support a conclusion.” Id.(internal quotation
marks omitted)(quoting Pierce v. Underwood, 487 U.S. 552, 565, 108 S.Ct. 2541, 2550, 101
L.Ed.2d 490 (1988)(quoting Consolidated Edison Co. v. NLRB, 305 U.S. 197, 229, 59 S.Ct. 206,
216-17, 83 L.Ed.126 (1938)). “Nonetheless, in evaluating the sufficiency of the evidence,
we will not sustain a decision which ignores uncontradicted, competent, credible evidence
to the contrary.” Id., citing US West Communications, Inc. v. Public Serv. Comm’n, 901 P.2d 270,
275 (Utah 1995)(citing Jones v. California Packing Corp., 121 Utah 612, 244 P.2d 640, 644
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(1952)).
DETERMINATIVE STATUTES, RULES AND/OR CASES (UT. R. APP. P.
9(c)(4), Advisory Committee Note): UTAH CODE ANN. §40-6-6.5 states as follows:
(1) Two or more owners within a drilling unit may bring together their interests for the development and operation of the drilling unit.
(2) (a) In the absence of a written agreement for pooling, the board may enter an order pooling all interests in the drilling unit for the development and operation of the drilling unit. (b) The order shall be made upon terms and conditions that are just and reasonable. (c) The board may adopt terms appearing in an operating agreement: (i) for the drilling unit that is in effect between consenting owners; (ii) submitted by any party to the proceeding; or (iii) submitted by its own motion.
Harken Southwest Corp. v. Board of Oil, Gas and Mining, 920 P.2d 1176, 1180 (Utah 1996)(see
supra); U.S. West Communications, Inc. v. Public Serv. Comm’n, 882 P.2dc 141, 146 (Utah 1994)
(see supra); Boston First Nat’l Bank v. Salt Lake County Bd. Of Equalization, 799 P.2d 1163,
1165 (Utah 1990) (see supra); Jones v. California Packing Corp., 121 Utah 612, 244 P.2d 640,
644 (1952) (see supra); US West Communications, Inc. v. Public Serv. Comm’n, 901 P.2d 270, 275
(Utah 1995) (see supra).
ISSUE III: Did the Board abuse its discretion delegated by statute when operator EPE’s proposed JOA contract was imposed word-for-word against non-operator Furlong without analyzing the particular facts of the case?
PRESERVATION: In response to the Board’s Request, Furlong asked that the
Board pool its interest and adopt terms governing future operations, including certain terms
of EPE’s proposed JOA, Furling’s requested changes, and other provisions suggested at the
Hearing. At the conclusion of the Hearing, the Board indicated its consideration of testimony
presented at the hearing by Furlong and Furlong’s proposed edits and amendments, and
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acknowledged that a legitimate disagreement existed and Furlong’s proposed terms may be
reasonable under certain circumstances; however, it nonetheless found that the particular facts
of this case dictated an adoption of EPE’s proposed JOA in its entirety as “just and
reasonable.” The Board found that EPE’s proposed JOA was appropriate to govern the
relationship between EPE and Furlong, Argo and Sanderson as Non-Operators as to the
Neihart 2-2C5 Well and Drilling Unit.
STANDARD OF APPELLATE REVIEW (UT. R. APP. P. 9(c)(4)), Advisory
Committee Note): “The appellate court shall grant relief only if, on the basis of the agency’s
record, it determines that a person seeking judicial review has been substantially prejudiced by
any of the following: … (e) the agency has engaged in an unlawful procedure or decision-
making process, or has failed to follow prescribed procedure; …” UTAH CODE ANN. §63G-
4-403(4)(e).
Sections 63G-4-403(4)(a)-(f) and (h)(ii) fall into this category … For this category of agency actions, we are free to apply our traditional approach for selecting an appropriate standard of review. … the applicable standard of review will depend on the nature of the agency action and whether it can be characterized as a question of law, a question of fact, or a mixed question of law and fact.
Murray v. Utah Labor Com’n, 2013 UT 38, ¶¶ 21-22, 308 P.3d 461. UTAH CODE ANN. §40-6-
6.5 gives the Board discretion on whether to adopt terms appearing in an operating
agreement. See., e.g., Bennion v. Utah State Bd. Of Oil, Gas & Min., 675 P.2d 1135, 1142 n. 3
(Utah 1983); UTAH CODE ANN. §40-6-6.5(2)(c). As to agency discretion, the Utah Court
of Appeals has stated as follows:
Discretion “encompass[es] the power of choice among several courses of action, each of which is considered permissible…” R. Aldisert, The Judicial
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Process 759 (1976). Tribunals may exercise discretion in many matters where there are no hard and fast rules of law and the tribunal is in an advantaged position to make the correct decision. Discretion, however, “is limited in that it must be exercised within the confines of the legal standards set by appellate courts…” Maghan v. Maughan, 770 P.2d 156, 159 (Utah App. 1989). Discretion may also be confined by statute. See Williams v. Mountain States Te. & Tel. Co., 763 P.2d 796, 800 (Utah 1988)(statute does not “eliminate the Commission’s power,” it “establishes the perimeters within which the PSC may properly exercise its expertise, authority, and jurisdiction.”). Discretion may best be viewed as an arena bounded by the law, within which the tribunal may exercise its judgment as it sees fit.
By an “abuse of discretion” … “is meant a clearly erroneous conclusion and judgment-one that is clearly against the logic and the effect of such facts as are presented in support of the application, or against the reasonable and probable deductions to be drawn from the facts disclosed upon the hearing.” It does not imply intentional wrong or bad faith or misconduct, nor any reflection on the judge. It is a legal term to indicate that the appellate court is of the opinion that there was commission of error of law in the circumstances. It is an improvident exercise of discretion; an error of law.
State v. Draper, 83 Utah 115, 143, 27 P.2d 39, 49-50 (1933)(quoting Starr v. State, 5 Okl. Cr. 440, 115 P. 356, 363 (1911); citations omitted). A claim that a tribunal has “abused its discretion” may more accurately be framed as a claim that the tribunal has “misused” or “exceeded” its discretion. An abuse of discretion, therefore, is an act by a tribunal, nor a standard of review in and of itself. A reviewing court discovers such acts by applying varying standards of review depending upon the error alleged. For example, if an alleged error involves a tribunal’s factual findings, a determination clearly within the arena of the tribunal’s discretion due to its advantaged position to hear and see the evidence firsthand, we review the tribunal’s factual finding using a clearly erroneous standard, giving great deference to the tribunal’s findings. See Utah R. Civ. Proc. 52(a). If an alleged error involves other decisions that are traditionally left to the discretion of a tribunal, we will not disturb the tribunal’s determination unless it is “arbitrary, capricious, or unreasonable.” Child v. Salt Lake City Civl Serv. Comm’n, 575 P.2d 195, 197 (Utah 1978)(rule 65B petition). See also Peatrss v. Board of Comm’rs, 555 P.2d 281, 284 (Utah 1976). If, however, a party claims that a tribunal has stepped out of the arena of discretion and thereby crossed the law, we review using a correction of error standard, giving no deference to the tribunal’s legal determination. We give no deference to such decisions because we are in as good a position as the tribunal to determine the law. Obviously, the making of a clearly erroneous factual finding is an abuse of
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discretion, as is acting unreasonably or misinterpreting the law. In essence, a reviewing court never overturns a lower tribunal unless there has been an abuse of discretion.4
4 In Utah Dept. of Admin. Servs. V. Public Serv. Comm’n, 658 P.2d 601 (Utah 1983), the Utah Supreme Court characterized questions of fact as receiving the most deference and questions of law as receiving the least deference. Between the two standards it identified several questions that require an intermediate standard of review. These include: “mixed questions of law and fact” (otherwise referred to as the application of the legal rules governing the case to the facts); ultimate facts; and issues of “special law” Id. at 610. Inasmuch as the standard of review for such questions is one of reasonableness, the intermediate standard is simply the same standard traditionally applied when a decision is left to the lower tribunal’s discretion. In other words, Utah Dept. of Admin Servs. effectively holds that mixed questions of law and fact, ultimate fact questions, and special law questions are all matters reserved for the discretion of the administrative body. Cf. Morton Int’l, Inc. v. Auditing Div. State Tax Comm’n, 814 P.2d 581, 588-89 (Utah 1991)(under UAPA, deference is given to an agency’s statutory interpretation when discretion is expressly granted to the agency by the legislature).
Tolman v. Salt Lake County Attorney, 818 P.2d 23, 26-27 and n. 4 (Utah App 1991). .
DETERMINATIVE STATUTES, RULES AND/OR CASES (UT. R. APP. P.
9(c)(4), Advisory Committee Note): UTAH CODE ANN. §40-6-6.5 states as follows:
(2) (c) The board may adopt terms appearing in an operating agreement: (i) for the drilling unit that is in effect between consenting owners; (ii) submitted by any party to the proceeding; or (iii) submitted by its own motion.
STATEMENT OF PERTINENT FACTS (UT. R. APP. P. 9(c)(5)):
Under its Order entered September 20, 1972 in Cause No. 139-8, as modified by orders
entered April 17, 1985 in Cause No. 139-42, on May 2, 2008 in Cause No. 139-83, and on
December 21, 2008 in Cause No. 139-84, the Board established the entirety of Section 2,
Township 3 South, Range 5 West, U.S.M., as a drilling unit, for the production of oil, gas and
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associated hydrocarbons from the Lower Green River-Wasatch formations (the “Drilling
Unit”), as more particularly described on p. 2 of the Amended Order challenged herein. The
Board authorized up to eight (8) producing wells over a parcel of irregular governmentally
sectioned land containing 13 tracts privately owned in fee (descriptions contained in the
Amended Order at pp. 4-6, ¶ 3; with the exception of Tract 3, which is tribally owned), setting
certain specifications more particularly set forth in the Amended Order at p. 4, ¶ 2.
The oil and gas on tracts 1, 9, 10 and 11 are under 50% lease to EPE, with the remaining
50% owned by QEP Energy Company (unleased) subject to a joint operating agreement (the
“JOA”). The oil and gas in tracts 2, 4, 5, 7B, 7C, and 8 are all under lease to EPE. The oil and
gas under tract 3 is subject to a Tribal Exploration and Development Agreement in favor of Bill
Barrett Corporation (“BBC”) and Crescent Point Energy U.S. Corp. (“Crescent Point”)
pursuant to which a lease shall issue. EPE maintains a lease for 90% of the oil and gas in tract
7A. The remaining portion of tract 7A is owned and unleased, but subject to a JOA, by EPE
(8.657813%) and LINN (1.342107%).
Tract 6 is leased to EPE (89.480552%), from Hunt equally to KKREP and Furlong
(2.083333%) as co-lessees, and T.C. Craighead & Company (0.976562%). Portions of tract 6
are owned and unleased, but subject to a JOA, by EPE (1.352783%), Broughton Petroleum,
Inc. (“Broughton”) (0.976562%), Slover Minerals, L.P. (0.976563%), QEP (2.08333%),
LINN Operating, Inc. (0.546875%) and Croff Oil Company, Inc. (0.546875%). Broughton’s
unleased interest is subject to a perpetual non-participating 25% royalty in favor of the heirs
or devisees of Mark A. Chapman. Argo and Mr. Sanderson each own an unleased 0.488281%
interest in tract 6, neither of which is subject to a JOA. Each fee lease, with the exception of
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the Hunt/KKREP/Furlong lease grants to the respective lessee the unilateral right to pool
the lease and the lessor’s interest thereunder.
EPE is named as operator pursuant to the various JOAs covering the Drilling Unit,
under which the parties have voluntarily pooled their working interests by contract. However,
the Hunt/KKREP Furlong lease on tract 6 required consent from Hunt and KKREP and the
pooling of Furlong as co-lessee to pool their interests. The unleased parties who executed a
JOA were provided for the payment of royalties attributable to their interest (1/5 for EPE
and QEP, and 1/6 for Slover, LINN and Croff). The BBC JOA provided a 100%-300%, while
all other JOAs provided a 150%-300% non-consent penalty. As a consequence, 99.645477%
of the working interest in the Drilling Unit is voluntarily pooled by contract, and these parties
made participation elections in the drilling of the Neihart 2-2C5 Well upon the Drilling Unit,
governed by the terms of the respective JOA.
The Neihart 2-2C5 Well was the second producing well drilled on the Drilling Unit;
however, the first was plugged and abandoned over 20 years prior to the spud of the Neihart
2-2C5 on August 7, 2015, which occurred upon prior orders governing the Drilling Unit as
well as approved application to the Board.
The interests of Argo and Mr. Sanderson remain unleased and have not otherwise been
pooled. In September 2014, they rejected an offer to lease by EPE and instead indicating a
desire to participate as working interest owners. Argo signed an authority for expenditure
(“AFE”), but refused to execute the JOA provided by EPE; however, EPE believed the AFE
was conditioned on the signing of the JOA. Mr. Sanderson refused to sign either an AFE or a
JOA.
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Furlong did not execute a JOA, and neither Furlong nor KKREP provided written
authorization from Hunt to allowing pooling of Hunt’s oil and gas interest or their lease
covering that interest. Thus, Hunt, KKREP and Furlong’s interests had not been pooled
either. In September of 2012, EPE attempted to negotiate a lease with Hunt, but received no
response.
On October 10, 2014, the Neihart 2-2C5 Well achieved first production. It continues
to produce from intervals within the Subject Formation, and was deemed “economically
feasible” to drill as that term is utilized in the orders governing the Drilling Unit.
On November 10, 2014, EPE provided Hunt a written Conditioned Election to Lease or
Participate allowing Hunt to lease or participate as an unleased working interest owner. Hunt
instead chose to lease its interest to KKREP and Furlong on November 26, 2014, as executed
by Furlong on December 17, 2014, and KKREP on December 26, 2014, with an effective
date of August 27, 2014.
On December 6, 2014, Furlong and KKREP advised EPE of their lease with Hunt.
They revised and executed the November 10, 2014 Conditioned Election to Lease or Participate
made to Hunt, indicating their intent to participate as leased working interest owners. Furlong
executed the AFE, but crossed out the condition that the JOA prepared by EPE be signed,
indicating a refusal to sign it. EPE responded by revising and resending the Conditioned Election
to Lease or Participate to Furlong and KKREP on December 16, 2014. KKREP signed both the
JOA and AFE. Furlong signed only the AFE, crossing out the condition that the JOA
prepared by EPE be signed. The AFE contains the following paragraph:
This authorization for expenditure (AFE) constitutes a contract between the non-operator signing the AFE and the operator whereby the non-operator
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hereby promises and agrees to pay operator, within thirty (30) days after billing, its proportionate share of all reasonable expenditures on the described operations until such time as an operating agreement is executed.
Thus, EPE and Furlong continued negotiating terms of an operating agreement that would be
mutually acceptable; however, no agreement was ever reached. Consequently, no pooling of
Furlong, KKREP and Hunt’s interest could be reached.
Furlong was never informed that drilling had occurred or been completed until, on
March 15, 2015, EPE filed a Request for Agency Action (the “Request”) before the Board of Oil,
Gas and Mining (the “Board”). On April 2, 2015, Furlong tendered its AFE’d share of costs.
In response to the Request, Furlong asked that the Board pool its interest and adopt terms
governing future operations, including certain terms of EPE’s proposed JOA, Furlong’s
requested changes, and other provisions suggested at the hearing held on Wednesday, April
22, 2015, at 1:20 p.m. in the Moab City Council Chambers in Moab, Utah (the “Hearing”).
Argo, Mr. Sanderson, Hunt and KKREP were declared in default pursuant to UTAH ADMIN.
CODE RULES R641-104-150 and R641-108-400 at the Hearing for failing to appear after
proper notice.
The Board ultimately found that Furlong consented to the drilling and operation of the
Neihart 2-2C5 Well and agreed to bear its proportionate share of costs. The Board further
found that the risk assumed by EPE and other participating working interest owners in the
drilling of Neihart 2-2C5 Well justified a 300% risk compensation award (non-consent
penalty). The Board found that the JOA proposed by EPE to Furlong was A.A.P.I. model-
form-based and similar to other JOAs previously adopted by the Board in prior compulsory
pooling matters. It further found the proposed JOA terms to be the same as in effect with
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other consenting owners within the Drilling Unit. Although the Board indicated its
consideration of testimony presented at the hearing by Furlong and Furlong’s proposed edits
and amendments, and acknowledged that a legitimate disagreement existed and Furlong’s
proposed terms may be reasonable under certain circumstances, it nonetheless found that the
particular facts of this case dictated an adoption of EPE’s proposed JOA in its entirety as “just
and reasonable.” The Board found that EPE’s proposed JOA was appropriate to govern the
relationship between EPE and Furlong, Argo and Sanderson as Non-Operators as to the
Neihart 2-2C5 Well and Drilling Unit. The Board determined that the actual cost of drilling
the Neihart 2-2C5 Well was $5,208,563 based on 100% working interest, which it found to be
“justified, fair and reasonable.” The vote of the Board was unanimous (6-0) in granting the
Request.
The Board concluded that EPE was a “consenting owner” as defined by UTAH CODE
ANN. §40-6-2(4) on behalf of KKREP and Furlong as it related to the Neihart 2-2C5 Well. It
further concluded that the compulsory pooling of Furlong’s interests in the Drilling Unit
retroactive to October 10, 2014—the first date of production for the well—was just and
reasonable to ensure they receive their fair and equitable share from the well. The Board
ordered that the interests of Argo, Mr. Sanderson, Hunt, KKREP and Furlong be pooled
retroactively to October 10, 2014, with each owner paying his/her allocated share of the costs
incurred in drilling and operating the Neihart 2-2C5, to be governed by the terms and
conditions of the JOA proposed by EPE and adopted in and attached to the Amended Order.
It ordered that KKREP and Furlong be deemed “consenting owners” as that term is utilized
under UTAH CODE ANN. §40-6-6.5 with respect to the Neihart 2-2C5 Well.
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On May 11, 2015, the Board issued its Minute Entry from the Hearing. On May 18,
2015, EPE filed its Motion for Reconsideration of Minute Entry, requesting reconsideration of the
Board’s determination that Furlong was a “consenting party” due to his delayed tendering of
payment under the AFE until April 2, 2015, after the Request was filed, and the legal theory
that the AFE was not a binding contract but rather only an estimate of costs that could not
legally bind Furlong to pay the costs. On May 26, 2015, Furlong replied to the first of EPE’s
reconsideration motions by arguing that reconsideration requests cannot be taken from non-
final orders, EPE failed to comply with UTAH ADMIN CODE RULE R641-110-200, EPE
improperly raised new legal theories not properly raised at the Hearing under cloak of a
reconsideration request, and EPE improperly attempted to introduce new evidence into the
record by footnote in its request. On June 8, 2015, the Board denied EPE’s first request for
reconsideration finding that Furlong sufficiently consented to the drilling and operation of the
subject well and agreed to bear its share of the costs, therefore rendering Furlong a
“consenting owner” for purposes of this matter. This vote was 5-1 in favor of denying EPE’s
request.
The initial Findings of Fact, Conclusions of Law and Order was entered by the Board on July
15, 2015. It was later amended on July 28, 2015 by the Amended Order challenged herein.
Furlong filed its Petition for Review of the Amended Order on August 3, 2015.
Later that same day, on August 3, 2015, EP Energy E&P Company, L.P.’s (“EPE”)
filed their Petition for Reconsideration of Amended Findings of Fact and Conclusions of Law and Order
pursuant to the provisions of UTAH CODE ANN. §63G-4-302. This second reconsideration
request argued that Furlong’s election only reflected participation for its proportionate share
17
and not any other party, limiting Furlong from benefitting or sharing in any third-party non-
consenting interests (i.e. Argo and Mr. Sanderson who were found to be “non-consenting”).
EPE argued that it was the only “consenting owner” entitled to recoupment and risk-
compensation award from non-consenting parties. EPE further argued that evidence showed
Furlong knew as early as December 6, 2014 that the Neihart 2-C25 Well had been spud, further
supporting exclusion of Furlong from the benefits of Argo and Sanderson’s non-consent
award since Furlong did not undertake the same risk that the other consenting owners had.
On August 6, 2015, Petitioner filed their Response to Petition for Reconsideration of Amended
Findings of Fact, Conclusions of Law and Order. Therein, Furlong argued that this was EPE’s second
attempt to retread arguments already made and lost at the Hearing. Furlong cited UTAH CODE
ANN. §40-6-6.5(4)(c)(ii) to indicate that Furlong was statutorily entitled to a proportionate
share of the non-consenting owners’ share of production until costs are recovered. Furlong
reminded the parties that the JOA was imposed, not agreed, and that the AFE was silent, not
ambiguous. Furlong additionally drew attention to the fact that EPE had failed to properly
abide the Board’s rules governing reconsideration requests by evidencing that the Amended
Order was either untoward or unjustified. The response indicated that routine regulatory
expenses are typically borne by the Operator (EPE) as overhead, and that it would constitute
a gross miscarriage of justice and waste of the Board’s time to argue over what percentage of
the bill was specifically devoted to the compulsory pooling of Argo and Mr. Sanderson.
On September 14, 2015, Furlong submitted its Joint Motion to Stay Appeal Pending
Outcome of Reconsideration Request and Memorandum in Support with the Board to this Court,
18
requesting that the appeal be stayed pending outcome of EPE’s second request for reconsideration.
Such request for stay was granted on August 26, 2015.
On September 15, 2015, the Board filed its Supplemental Order Concerning Motion for
Reconsideration, extending its time for ruling to October 5, 2015. On October 13, 2015, the
Board of Oil Gas and Mining, Department of Natural Resources, entered its Order Resolving
August 3, 2015 Petition for Reconsideration, which effectively denied EPE’s second request for
reconsideration. The Board interpreted Utah Code Ann. §40-6-6.5(4)(c) as mandating that,
“absent a contrary agreement, Furlong will help carry the nonconsenting parties and will share
in recoupment of the risk compensation award.” The Board found that there was no evidence
of an affirmative agreement by Furlong not to bear its share of the nonconsenting owners’
interests, particularly since the AFE did not speak to the carrying of nonconsenting owners.
Although the EPE proposed JOA contained a provision that failure to execute such would
result in the party not sharing in the nonconsenting owners’ interests, the Board found that
Furlong’s refusal to sign that proposed JOA could not be an affirmative agreement not to bear
its share of the nonconsenting owners’ interests. Furlong could not affirmatively agree to the
term by not signing the proposed JOA. The Board acknowledged it had imposed the proposed
JOA on Furlong; however, it interpreted this action as “executing the agreement on Furlong’s
behalf and making Furlong a party to it.” Thus, Furlong was an involuntary party/signatory
to the agreement and must receive the benefits of, and be treated as if it had executed the
JOA. Therefore, Furlong was to participate in carrying the nonconsenting owners. The Board
found that Furlong’s risks in consenting after the drilling and production commenced,
although reduced, remained outstanding after completion of the well and were not fully
19
avoided until after the well had paid out (if that occurs). The Board noted that, until then,
there is always a risk that the well ceases producing. The Board declined to render what would
amount to nothing more than an advisory opinion on EPE’s request that Furlong share in
recoupment of nonconsenting parties given that such request was premature and speculative
on future joint interest billings. Further, the Board found adjudication of such matters under
a JOA are typically resolved by the courts rather than the Board, citing UTAH CODE ANN.
§40-6-9(7)(d), -9(8) and -9(9).
VI. RELATED AND/OR PRIOR APPEALS: not applicable
VII. OTHER (UT. R. APP. P. 9(c)(4)): Petitioner reserves the right to alter these issues
for briefing or raise any additional issues that may arise after full review of the record.
VIII. ATTACHMENTS:
A. Amended Findings of Fact, Conclusions of Law and Order, dated July 28, 2015;B. Petition for Review, dated August 3, 2015;C. Order Resolving August 3, 2015 Petition for Reconsideration, dated October 13, 2015.
DATED this ___ day of December, 2015.
__________________________ Justin Rammell Anthony T. Hunter Attorneys for Petitioner, J.P. Furlong Co.
28th
20
CERTIFICATE OF SERVICE
I hereby certify that on this ___ day of December, 2015, I caused a true and correct
copy of the foregoing Docketing Statement for Appellate Case No. 20150620-SC; Docket No.
2015-013, Cause No. 139-130, to be mailed via First Class Mail with postage prepaid, to the
following:
Steven F. Alder, Esq. Assistant Attorney General Attorney for Division of Oil, Gas and Mining 1594 West North Temple #300 Salt Lake City, Utah 84116 Email: [email protected] Michael S. Johnson Assistant Attorney General Attorney for Board of Oil, Gas and Mining 1594 West North Temple #300 Salt Lake City, Utah 84116 Email: [email protected] Board of Oil, Gas and Mining Attn. Julie Ann Carter Email: [email protected] J.P. Furlong Co Attn. Timothy P. Furlong P.O. Box 2357 Bismarck, ND 58502 Frederick M. MacDonald, Esq. MacDonald & Miller Mineral Legal Services, PLLC Attorney for EP Energy E&P Company, L.P. 7090 S. Union Park Avenue, Suite 400 Midvale, UT 84047 John DeWitt, Jr. – Staff Landman EP Energy E&P Company, L.P. P.O. Box 4660 Houston, TX 77210-4660
_______________________________
28th
IN TI{E MATTER OF THE REQUEST FORAGENCY ACTION OF EP ENERGY E&PCOMPANY, L.P. FOR AN ORDER POOLINGALL INTERESTS, INCLUDING TT{E
COMPULSORY POOLING OF TFIE INTERESTS
OF ARGO ENERGY PARTNERS, LTD., DUSTYSANDERSON, HLINT OIL COMPANY, KKREP,LLC, AND J.P. FURLONG CO., IN TI{EDRILLING I.INIT ESTABLISHED FOR TI{EPRODUCTION OF OIL, GAS ANDASSOCIATED HYDROCARBONS FROM TI{ELOWER GREEN RIVER-WASATCHFORMATIONS COMPRISED OF ALL OF
SECTION 2, TOWNSHIP 3 SOUTH, RANGE 5
WEST, U.S.M., DUCHESNE COUNTY, UTAH
FILEDJUL 2I 2015
sEcnEfARY BOA,Ð OFOlL, GAS e irilfüNG
AMENDED FINDINGS OF' FACTCONCLUSIONS OF LA\ry AND
ORDER
BEFORE THE BOARD OF OIL, GAS AND MININGDEPARTMENT OF NATURAL RESOURCES
STATE OF UTAH
Docket No. 2015-013
Cause No. 139-130
This Cause came on for hearing before the Utah Board of Oil, Gas and Mining
(the "Board") on Wednesday, April 22,2015, at l:20 p.m., in the Moab City Council
Chambers in Moab, Utah. The following Board members were present and participated at
the hearing: Chairman Ruland J. Gill, Jr., Susan S. Davis, Gordon L. Moon, Carl F.
Kendell, Chris D. Hansen, and Richard K. Borden. Board member Michael R. Brown
was unable to attend. The Board was represented by Michael S. Johnson, Esq., Assistant
Attorney General.
Testifuing on behalf of Petitioner EP Energy E&P Company, L.P. ("EPE") were
John D. DeWitt, Jr. - Staff Landman, Michael J. Walcher - Land Advisor, and Steven A.
Biancardi - Reservoir Engineering Advisor. Mr. rWalcher and Mr. Biancardi were
recognized by the Board as experts in petroleum land management and petroleum
engineering, respectively, for pu{poses of this Cause. Frederick M. MacDonald, Esq., of
and for MacDonald & Miller Mineral Legal Services, PLLC, appeared as attomey for
EPE.
Testifuing on behalf of Respondent J.P. Furlong Co. ("Furlong") were Timothy P.
Furlong - President, Ramona Garcia Furlong, Esq. - Counsel and Primary Negotiator; and
Kruse B. Kemp. Anthony T. Hunter, Esq. appeared as attorney for Furlong.
The Division of Oil, Gas and Mining (the "Division") did not f,rle a staff
memorandum in this Cause but participated in the hearing. Steven F. Alder, Erq.,
Assistant Attorney General, appeared as attorney for the Division.
No other party f,rled a response to EPE's Request for Agency Action filed on
March 10, 2015 (the "Request") and no other party appeared or participated at the
hearing. As a consequence of their respective failures to timely file a response and
appear at the hearing after proper notice to them, EPE made an oral motion at the
commencement of the hearing to declare Argo Energy Partners Ltd. ("Argo"), Dusty
Sanderson, Hunt oil Company ("Hunt") and KKREP, LLC ("KKREP") in default
pursuant to Utah Admin. Code Rules R641-104-150 and R64l-108-400, which the Board
granted.
2
The Board, having considered the testimony and exhibits admitted into evidence at
the hearing and all pleadings on file in this Cause, being fully advised, and in part for the
reasons outlined in the Board's Minute Entry entered on May ll, 2015 (the "Minute
Entry") and Order Denying Motion to Reconsider entered on June 8, 2105 (the
"Reconsideration Order") which, by this reference, are incorporated herein, hereby makes
the following findings of fact, conclusions of law and order in this Cause.
F''INDIN OF FACT
1. EPE is a Delaware limited partnership with its principalplace of business in
Houston, Texas. It is duly qualified to conduct business in the State of Utah, and is fully
and appropriately bonded with all relevant Federal, Indian and State of Utah agencies.
2. Under its Order entered on September 20, 1972 in Cause No. 139-8 (the
"139-8 Order"), as modified by the Orders entered on April 17, 1985 in Cause
No. 139-42 (the *139-42 Order"), entered on May 2, 2008 in Cause No. 139-83 (the
"139-83 Order"), entered on December 21, 2008 in Cause No. 139-84 (the "139-84
Order"), and entered Novemb er 6, 2014 in Cause No. 139- I 24 (the *139-124 Order") (the
139-8, 139-42, 139-83, 139-84 and 139-124 Orders collectively hereinafter the
"Applicable Orders"), the Board established the entirety of Section 2, Township 3 South,
3
Range 5 West, U.S.M., as a drilling unit, for the production of oil, gas and associated
hydrocarbons from the Lower Green River-V/asatch formations, def,rned as:
the interval from the top of the Lower-Green River formation (TGRrmarker) to the base of the Green River-Wasatch formations (top of theCretaceous), which base is defined as the stratigraphic equivalent of theDual Induction Log depths of 16,720 feet in the shell-Ute l-1885 welllocated in the St/2NEy4 of Section 18, Township 2 South, Range 5 W'est,U.S.M., and 16,970 feet in the Shell-Brotherson 1-1184 well located in theSt/zNEY¿ of Section ll, Township2 South, Range 4 West, U.S.M.
(the "Drilling Unit"), and authorized up to eight producing wells for such unit, whether
all vertical, all horizontal, or a combination of both, to be located no closer than 660 feet
from a unit boundary and 990 feet from another well producing in the same formation
with certain caveats.
3. Subject Section 2 is an irregular governmental section, comprised of a
combination of lots and quarter-quarter sections, and totaling 639.04 acres. Oil and gas
ownership within Section 2 is divided into the following 13 tracts:
Tract Lands Acreage % of Drilline Unit
I EY2of Lot I 19.97 3.125%
2
J
W% of Lot l; Lots 2 and 3;and N%SZzNE% less Tract4 below
Lot 4; SW7¿NW%;WYzSEV+; and SE%SW%
135.99 21.2803s8%
199.58 31.231222%
4 East 14 rods of the
4
3.5 0.547697%
5
6
NYzSt/zl{EV¿
A 5.81-acre metes &bounds tract in theSE7ÀIW%
SW%SW%SE%; and all ofthe "hill and bench lands"in the SE7¿NW% andNE%SW%
Beg. at the SE comer of theSW%SE%; thence V/est40 rods; thence North 40rods, thence West 40 rods;thence North 80 rods;thence Southeast to POB
A 4.84-acre metes &bounds tract in theNW%SE% andN%SW%SE%
40.62-acre metes &bounds tract in theS%SW%SEY4
SVzSt/zNEY+; and all of the"valley lands" in theSE74NW% less Tract 5above, NE%SW%,NV/%SE% and northern 4rods of the SW%SE%
49.46-acre metes &bounds tract in theSW%SE%
5.81
74.04
20
4.84
0.62
85.23
0.909176%
11.586129%
3.129695%
0.7s7386%
0.097021%
13.337193%
7A
7B
7C
8
9
5
9.46 1.480345%
l0 A 6.3l-acre metes &bounds tract in theE%SEY+
6.31 0.987419%
1l EY2SEy4less Tract l0 above 73.69 11.53159%
TOTALS = 639.04 l00%o
The oil and gas in all of the Tracts except Tract 3 are owned in fee (privately). The oil
and gas in Tract 3 is Tribally owned.
4. In Tracts I and 9-ll, 50%o of the oil and gas is under lease to EPE and the
remaining 50% is owned by QEP Energy Company ("QEP") and unleased, but subject to
a joint operating agreement ("JOA"). The oil and gas in Tracts 2, 4, 5,78,7C and 8 are
all under lease to EPE. The oil and gas in Tract 3 is subject to a Tribal Exploration and
Development Agreement in favor of Bill Barrett Corporation ("BBC") and Crescent
Point Energy U.S. Corp. ("Crescent Point") pursuant to which a lease shall be issued. In
Tract 6, 89.480552% is under lease to EPE, 2.083333% is under a lease from Hunt
equally to KKREP and Furlong, and 0.976562% is under lease to T.C. Craighead &
Company ("Craighead"). Furtherrnore, EPE (l .352783%), Broughton Petroleum, Inc.
("Broughton") (0.976562%), Slover Minerals, L.P. ("Slover") (0.976563%), QEP
(2.083333%), LINN Operating, Inc. ("LINN") (0.546875%) and Croff Oil Company, Inc.
("Croff') (0.546875%) all own unleased interests in Tract 6, but all of these interests are
subject to JOA's. Broughton's unleased interest is subject to a perpetual non-participating
25%o royalty in favor of the heirs or devisees of Mark A. Chapman. Argo and
6
Mr. Sanderson each own an unleased 0.488281% interest in Tract 6, neither of which is
subject to a JOA. Finally, in Tract 7A, 90yo of the oil and gas is under lease to EPE.
Furthermore, EPE (8.657813Yo) and LINN (1.342107%) own unleased interests in
Tract 74, but both interests are subject to JOA's. Each fee lease, with the exception of
the Hunt/I(KREPÆurlong Lease, grants to the respective lessee the unilateral right to
pool the lease and the lessor's interest thereunder.
5. EPE, BBC, Crescent Point, Croft Broughton, Craighead, Slover, QEP,
LINN and KKREP all have executed various JOA's covering the Drilling Unit, pursuant
to which EPE is named as operator and pursuant to which the parties voluntarily pooled
their working interests by contract. However, KKREP's interest cannot, under the terms
of its Lease with Hunt, be so voluntarily pooled without Hunt's consent or absent the
pooling of Furlong as its co-lessee. As to those unleased parties who executed a JOA, the
respective JOA's provide for the payment of the following royalties attributable to their
interests to them:
Parties Royalty
EPE and QEP ll5
Slover, LINN,and Croff
ll6
The BBC JOA provides for a 100%1300%, while all of the other JOA's provide for a
150%13000/o non-consent penalty. All other terms of the JOA's are materially consistent.
7
As a consequence, 99.645477%o of the working interest in the Drilling Unit is voluntarily
pooled by contract. These parties made participation elections in the drilling of the
Neihart 2-2C5 Well upon the Drilling Unit, the consequences of which are governed by
the terms of the respective JOA.
6. The interests of Argo and Mr. Sanderson remain unleased and have not
otherwise been pooled. Furlong has not executed a JOA, and neither Furlong nor KKREP
has provided written authorization from Hunt to allow pooling of Hunt's oil and gas
interest or the Lease covering that interest. As a consequence, Hunt, KKREP and
Furlong's interests have not been pooled either.
7. Commencing in September 2014, EPE conducted good faith negotiations
for the leasing or participation of Argo and Mr. Sanderson's interests. Both parties
rejected leasing, instead indicating they would rather participate as working interest
owners. Argo signed an authority for expenditure ("AFE"), but refused to execute the
JOA provided by EPE and upon which EPE stated the AFE was conditioned. Mr.
Sanderson refused to execute an AFE or a JOA. Both parties also failed to provide any
counter-proposals for JOA terms and conditions, even after express written request by
EPE. Consequently, mutually acceptable participation terms could not be reached.
Neither party has tendered their proportionate share of the AFE'd costs for the Neihart
2-2C5 Well.
8
8. Commencing in September 2012, EPE offered in good faith to lease Hunt's
interest but no response was received. EPE renewed good faith efforts to lease Hunt's
interest in September 2014. On November 10, 2014, EPE provided Hunt with a written
conditional offer to lease or participate as an unleased working interest owner as
evidenced by Rebuttal Exhibit "6" admitted into evidence.
9. As evidenced by Exhibit "K" admitted into evidence, Hunt instead chose to
lease its interest to KKREP and Furlong on November 26, 2014, which Lease was
executed by Furlong on December 17,2014 and by KKREP on December 26,20l4,with
a stated effective. date of August 27, 2014.
10. As evidenced by Rebuttal Exhibit "7" admitted into evidence, Furlong and
KKREP advised EPE of the grant of the Hunt Lease to them by e-mail dated December 6,
2014, and revised and executed the November 10, 2014 Conditioned Election to Lease or
Participate made to Hunt, reflecting their election to participate as leased working interest
owners and executing the AFE's but crossing out the condition that the JOA prepared by
EPE be signed and instead indicating they would refuse to sign the proposed JOA.
11. As evidenced by Rebuttal Exhibit "S" and Exhibit "M" admitted into
evidence, EPE revised and resent the Conditioned Election to Participate to Furlong and
KKREP on December 16, 2014. As evidenced by Exhibit "L" admitted into evidence,
KKREP signed both the JOA and AFE. As evidenced by Exhibit "N" admitted into
9
evidence, Furlong signed the AFE but crossed out the condition that the JOA prepared by
EPE be signed. The AFE contained the following paragraph
This authorization for expenditure (AFE) constitutes a contract between thenon-operator signing the AFE and the operator whereby the non-operatorhereby promises and agrees to pay operator, within thirty (30) days afterbilling, its proportionate share of all reasonable expenditures on thedescribed operations until such time as an operating agreement is executed.
12. Thereafter, EPE and Furlong negotiated on terms of a JOA that would be
mutually acceptable but no agreement was reached. As a consequence, no agreement for
the voluntary pooling of Furlong, KKREP and Hunt's interest could be reached.
13. Furlong was not aware that the well had been drilled and completed until
after the hling of the Request for Agency Action ("RAA") in this Cause. When the
Response to the RAA was hled, Furlong asked the Board to pool its interest and adopt
terms governing future operations, including certain terms of EPE's proposed JOA,
Furlong's requested changes, and other provisions suggested at the hearing.
14. Furlong tendered its AFE'd share of costs on April 2, 2015, after the filing
of the Request for Agency Action in this Cause.
15. Under the particular facts of this case and for reasons discussed in part in
the Minute Entry and the Reconsideration Order, the Board f,rnds that Furlong consented
to the drilling and operation of the Neihart 2-2C5 Well and agreed to bear its
proportionate share of costs.
l0
16. In accordance with the Applicable Orders and its Application for Permit to
Drill approved by the Division of Oil, Gas and Mining, EPE spud the Neihart 2-2C5 Well
at a location 799 feet FSL and 2,406 feet FEL in the SW%SE% of subject Section 2 on
August 7,2014, and completed it as a producing oil well with f,rrst production achieved
on October 10,2014. The Neihart 2-2C5 Well has produced and continues to produce
from intervals within the Subject Formations, and was deemed "economically feasible" to
drill as that term is utilized in the Applicable Orders.
17. The Neihart 2-2C5 Well is the second producing well drilled on the Drilling
Unit. However, the first well was plugged and abandoned over 20 years prior to the spud
of the Neihart 2-2C5 Well. Corrected Exhibit "Y" admitted into evidence reflects a range
of potential production outcomes, with a low of 25.8 MBO, a high of 481.2 MBO and a
median of 150 MBO. The wide variability, primarily due to fracturing, reflects the
uncertainty of drilling a successful economic well at the time the Neihart 2-2C5 Well was
spud. In addition, the complex nature of the Lower Green River-Wasatch formation
present inherent risks.
18. Given the findings outlined in Findings of Fact Nos. 5,7 and 17 above, and
based on the other evidence presented, the risk assumed by EPE and the other
participating working interest owners in the drilling of the Neihart 2-2C5 Well justifies a
300% risk compensation award (non-consent penalty).
ll
19. The A.A.P.L. model-form-based JOA proposed by EPE is similar to other
JOAs previously adopted by this Board in prior compulsory pooling matters. The Board
also notes that JOA terms materially the same as those proposed by EPE in this matter
have been agreed upon and are presently in effect between other consenting owners
within the subject drilling unit. Although JOAs substantially similar to this form of
operating agreement were previously deemed just and reasonable in prior matters, the
Board analyzed the JOA proposed by EPE anew for purposes of making its determination
in the present case. The Board's analysis included consideration of testimony given by
the parties' witnesses regarding Furlong's proposed edits and amendments to certain
provisions of the JOA as proposed by EPE. While legitimate disagreement can exist
about the provisions at issue, and while the parties' differing proposed terms might be
reasonable under certain circumstances, on balance, the Board finds that under the facts
of this case, the terms of the EPE proposal are just and reasonable and adopts them for
pu{poses of this matter. The terms and conditions of the JOA admitted into evidence at
the hearing as EPE's Exhibit "V," and attached hereto and by this reference incolporated
herein, are justified, fair and reasonable, and are appropriate to govern the relationship
between EPE, as Operator of the Drilling Unit, and Argo, Mr. Sanderson and Furlong, as
Non-Operators, as to the Neihart 2-2C5 V/ell and the Drilling Unit to the extent not
inconsistent with this Order.
t2
20. As reflected on Corrected Exhibit "W" admitted into evidence, the average
weighted fee royalty interest for the Drilling Unit, which accounts for the Chapman
perpetual non-participating royalty and the royalties provided in the
HuntÆurlongÆ(KREP Lease and the JOA's as outlined in Findings of Fact No. 5 above,
is 17.353250%.
21. An interest rate charge of prime rate in effect at JP Morgan Chase Bank
plus 1% is justified, fair and reasonable.
22. Estimated plugging and abandonment costs of $75,000, based on 100%
working interest ownership, are justified, fair and reasonable.
23. As of the hearing date, the actual cost of drilling the Neihart 2-2C5 Well
was $5,208,563, based on l00Yo working interest, as detailed on Exhibit 6ÉX" admitted
into evidence. Said costs are deemed justif,red, fair and reasonable.
24. A copy of the Request was mailed, postage pre-paid, certified with return
receipt requested, and properly addressed, to Argo, Mr. Sanderson, Hunt, KKREP and
Furlong, and copies of the return receipts, evidencing receipt by all of said parties, were
duly filed with the Board. In addition, a copy of the Request was mailed, postage
pre-paid, to all other production interest owners within the Drilling Unit and to the
Bureau of Indian Affairs, Uintah and Ouray Agency (the "BIA") and the Vernal Field
Ofhce of the Bureau of Land Management as regulatory agencies having jurisdiction
l3
over the oil and gas ownership in portions of Section 2. Said mailings were sent to the
parties' last address disclosed by the relevant Duchesne County and Agency realty
records.
25. Notice of the filing of the Request and of the hearing thereon was duly
published in the Salt Lake Tribune and Deseret Morning News on April 5, 2015, and in
the Uintah Basin Standard on April 7,2015.
26. The Board initially took the matter under advisement. The vote of the
Board members present in the hearing and participating in this Cause was unanimous
(6-0) in favor of granting the Request except as modified by the Minute Entry, and was 5-
l, with Chairman Gill casting the dissenting vote, on the Reconsideration Order.
CONCLUSIONS OF'LAW
l. Due and regular notice of the time, place and purpose of the hearing was
properly given to all parties whose legally protected interests are affected by the Request
in the form and manner as required by law and the rules and regulations of the Board and
Division.
2. The Board has jurisdiction over all matters covered by the Request and all
interested parties therein, and has the power and authority to render the order herein set
forth pursuant to Utah Code Ann. $40-6-6.5.
t4
3. EPE has sustained its burden of proof demonstrated good cause and
satisfied all legal requirements for the granting of the Request except as modified by the
Minute Entry.
4. Pursuant to the holding in Cowling v. Board of Oi| Gas and Mining,
830 P.2d 220,226 (Utah 1991), the Applicable Orders established, upon their respective
entry, the parties' correlative rights to production from any well located on the Drilling
Unit.
5. Due to their failure to timely respond to the Request and to appear at the
hearing after proper notice, Argo, Mr. Sanderson, Hunt and KKREP are declared in
default pursuant to Utah Admin. Code Rules R641-104-150 and R64l-108-400.
6. EPE exercised good faith in attempting to solicit the leasing of Argo and
Mr. Sanderson's interests or their participation as unleased working interest owners.
7. Argo and Mr. Sanderson are deemed "non-consenting owners," as that term
is dehned in Utah Code Ann. $40-6-2(ll), as relating to the Neihart 2-2C5 W'ell, and are
properly deemed to have refused to agree to bear their respective proportionate share of
the costs of the drilling and operation of the said Well as provided in Utah Admin. Code
Rule R649-2-9(l).
8. EPE, as Operator on behalf of itself BBC, Crescent Point, Croft
Broughton, Craighead, Slover, QEP, LINN, KKREP, and Furlong, is deemed a
15
"consenting owner," as that term is defined in Utah Code Ann. $40-6-2(4), as relating to
the Neihart 2-2C5 V/ell. .
9. The compulsory pooling of Argo's, Mr. Sanderson's, Hunt's, KKREP's
and Furlong's interests in the Drilling Unit retroactive to October 10,2014, being the date
of first production for the Neihart 2-2C5 Well, under the terms and conditions set forth in
this Order is just and reasonable, and insures all parties will receive their fair and
equitable share of production from the said Well.
10. Given the Tribal Lease covering Tract 3 of the Drilling Unit, a compulsory
pooling order from the Board is required before a conforming communitization
agreement will be approved by the BIA, whether expressly pursuant to Federal guidelines
or as a matter of Agency practice.
ORDER
Based upon the Request, testimony and evidence submitted, and the findings of
fact and conclusions of law stated above, the Board hereby orders:
l. The Request in this Cause is granted except as modif,red by the Minute
Entry.
2. The interests of all parties subject to the jurisdiction of the Board,
specifically including Argo, Mr. Sanderson, Hunt, KKREP and Furlong, in the Drilling
Unit are pooled retroactively to October 10, 2014 (being the date of first production of
t6
the Neihart 2-2C5 Well).
3. Operations on any portion of the Drilling Unit shall be deemed for all
purposes to be the conduct of operations upon each separately owned tract in the Drilling
Unit by the several owners.
4. Production allocated or applicable to a separately owned tract included in
the Drilling Unit shall, when produced, be deemed for all purposes to have been produced
from that tract by a well drilled on it.
5. Each owner shall pay his/its allocated share of the costs incurred in drilling
and operation of the Neihart 2-2C5 Well, including, but not limited to, the costs of
drilling, completing, equipping, producing, gathering, transporting, processing,
marketing, and storage facilities, reasonable charges for administration and supervision of
operations, and other costs customarily incurred in the industry, all to be governed in
accordance with the terms and conditions of the JOA's executed with EPE or, only in the
case of Argo, Mr. Sanderson and Furlong, the JOA attached hereto to the extent not
otherwise inconsistent with this Order.
6. Argo and Mr. Sanderson are non-consenting owners and EPE, as Operator
of the Drilling Unit on behalf of itself BBC, Crescent Point, Croff, Broughton,
Craighead, Slover, QEP, LINN, KKREP, and Furlong, is a consenting owner as these
L7
terms are utilized in Utah Code Ann. $40-6-6.5, with respect to the Neihart 2-2C5 Well.
Such parties shall hereinafter be referred to by utilizing such terms with capitalization.
7. The interests of the Non-Consenting Owners shall be deemed relinquished
to the Consenting Owner during the period of payout for the Neihart 2-2C5 Well as
provided in Utah Code Ann. $40-6-6.5(3). The relinquishment does not constitute a
defeasance of title to the interest in the mineral estate, but rather the relinquishment of the
revenue stream attributable to the Non-Consenting Owners' allocated share during the
period of payout after payment of the royalty provided herein.
8. Each Non-Consenting Owner shall be entitled to receive, subject to the
royalty specified herein, the share of the production of the Neihart 2-2C5 Well applicable
to such owner's interest in the respective Drilling Unit after the Consenting Owner has
recovered the following from such Non-Consenting Owner's share of production:
(1) 100% of the Non-Consenting Owner's share of the cost of surface equipment beyond
the wellhead connections, including stock tanks, separators, treaters, pumping equipment,
and piping; (2) 100% of the Non-Consenting Owner's share of the estimated costs of
plugging and abandoning the Neihart 2-2C5 Well, which estimated costs are and shall be
for each well $75,000 (based on a l00Yo working interest); (3) 100% of the Non-
Consenting Owner's share of the cost of operation of the Neihart 2-2C5 Well,
commencing with first production and continuing until the Consenting Owner has
l8
recovered all costs; and (4) a risk compensation award of 300Yo of the Non-Consenting
Owner's share of the costs of staking the location, wellsite preparation, rights-of-way,
rigging up, drilling, reworking, recompleting, deepening or plugging back, testing, and
completing, and the cost of equipment in the Neihart 2-2C5 Well, to and including the
wellhead connections, as such costs are delineated in Utah Code Ann. $40-6-6.5(4Xd).
The Non-Consenting Owner's share of costs is that interest that would have been
chargeable to the Non-Consenting Owner had such owner initially agreed to pay such
owner's share of the costs of the Neihart 2-2C5 rWell, from the commencement of
operations. In addition, a reasonable interest rate of prime in effect at JP Morgan Chase
plus 1% shall be imposed per Utah Code Ann. $40-6-6.5(4xdxiiÐ
9. Each Non-Consenting Owner shall receive a royalty equal to the average
weighted fee landowner's royalty of 17.353250%. When calculating the division of
interest for each Non-Consenting Owner, the average weighted fee landowner's royalty
shall be proportionately reduced in the ratio that the Non-Consenting Owner's interest
bears to (l) the total interest in the tract and (2) then further reduced in the ratio that the
tract acres bear to the total acreage in the Drilling Unit. The proportionately reduced
royalty shall be paid to each Non-Consenting Owner until such time as such Non-
Consenting Owner's share of costs, the 300o/o risk compensation award, and applicable
t9
interest charges have been fully recouped, as provided in Utah Code Ann. $40-6-6.5 and
in this Order.
10. The Consenting Owner shall furnish each Non-Consenting Owner with
monthly statements speciffing:
costs incurred;the quantity of oil or gas produced; andthe amount of oil and gas proceeds realized from the sale ofproduction during the preceding month,
as relating to the Neihart 2-2C5 \üell.
ll. Upon the payout of the Neihart 2-2C5'Well, the Non-Consenting Owners'
relinquished interests in said V/ell shall automatically revert to them, and the
Non-Consenting Owners shall from that time forward own the same interest in the V/ell
and the production from it, and shall be liable for the further costs of operation, as if such
owners had participated in the initial drilling and completion operations.
12. Payout occurs when the Consenting Owner has recouped from the
Non-Consenting Owners the costs and expenses of drilling and completing the
Neihart 2-2C5 Well, together with the risk compensation award (non-consent penalty)
and interest, as provided for in Order No. 8 above.
13. In any circumstance when any Non-Consenting Owner has relinquished
such owner's share of production to the Consenting Owner or at any time fails to take
such owner's share of production in-kind, when such owner is entitled to do so, such
20
a.
b.c.
Non-Consenting Owner is entitled to an accounting of the oil and gas proceeds applicable
to such owner's relinquished share of production; and payment of the oil and gas
proceeds applicable to that share of production not taken in-kind, net of costs.
14. Pursuant to Utah Admin. Code Rules R64l and Utah Code Ann. g63G-4-
204 to 208, the Board has considered and decided this matter as a formal adjudication.
15. This Order is based exclusively on evidence of record in the adjudicative
proceeding or on facts off,rcially noted, and constitutes the signed wriffen order stating the
Board's decision and the reasons for the decision, all as required by the Administrative
Procedures Act, Utah Code Ann. $63G-4-208 and Utah Administrative Code
Rule R64l-109.
16. to Seek J Utah S
Request Board Reconsideration: As required by Utah Code Ann. $63c-a-208(e) - (g),
the Board hereby notifies all parties in interest that they have the right to seek judicial
review of this final Board Order in this formal adjudication by filing a timely appeal with
the Utah Supreme Court within 30 days after the date that this Order issued. Utah Code
Ann. $$63G-4-401(3Xa) and 403. As an alternative to seeking immediate judicial
review, and not as a prerequisite to seeking judicial review, the Board also hereby notihes
parties that they may elect to request that the Board reconsider this Order, which
2t
constitutes a final agency action of the Board. Utah Code Ann. $63G-4-302, entitled,
"Agency Review - Reconsideration," states:
(lXa) Within 20 days after the date that an order is issued for which reviewby the agency or by a superior agency under Section 63G-4-301 isunavailable, and if the order would otherwise constitute f,rnal agency action,any party may file a written request for reconsideration with the agency,stating the specif,rc grounds upon which relief is requested.
(b) Unless otherwise provided by statute, the filing of the request is not aprerequisite for seeking judicial review of the order.
(2) The request for reconsideration shall be filed with the agency and onecopy shall be sent by mail to each party by the person making the request.
(3Xa) The agency head, or a person designated for that purpose, shall issuea written order granting the request or denying the request.
(b) If the agency head or the person designated for that pu{pose does notissue an order within 20 days after the hling of the request, the request forreconsideration shall be considered to be denied.
Id. The Board also hereby notif,res the parties that Utah Admin. Code Rule
R641-110-100, which is part of a group of Board rules entitled, "Rehearing and
Modif,rcation of Existing Orders," states:
Any person affected by a final order or decision of the Board may file apetition for rehearing. Unless otherwise provided, a petition for rehearingmust be filed no later than the lOth day of the month following the date ofsigning of the final order or decision for which the rehearing is sought. Acopy of such petition will be served on each other party to the proceedingno later than the l5th day of the month.
Id. See Utah Admin. Code Rule R64l-110-200 for the required contents of a petition for
Rehearing. If there is any conflict between the deadline in Utah Code Ann. $63G-4-302
22
and the deadline in Utah Admin. Code Rule R641-110-100 for moving to rehear this
matter, the Board hereby rules that the later of the two deadlines shall be available to any
pafty moving to rehear this matter. If the Board later denies a timely petition for
rehearing, the party may still seek judicial review of the Order by perfecting a timely
appeal with the Utah Supreme Court within 30 days thereafter
17. The Board retains continuing jurisdiction over all the parties and over the
subject matter of this cause, except to the extent said jurisdiction may be divested by the
filing of a timely appeal to seek judicial review of this order by the Utah Supreme Court.
18. For all pu{poses, the Chairman's signature on a faxed copy of this Order
shall be deemed the equivalent of a signed original.
DATED this 28th day of July,2015.
STATE OF UTAHBOARD OF OIL, GAS AND MINTNG
By:J GiII, Jr
23
CERTIFICATE OF SERVICE
I hereby certify that on this 28th day of July , 2015, I caused a true and correct copy of the
foregoing ORDER for Docket No. 2015-013, Cause No. 139-130, to be mailed by Email or via
First Class Mail with postage prepaid, to the following:
Frederick M. MacDonald, Esq.MacDonald & MillerMineral Legal Services, PLLC7090 S. Union Park Avenue, Suite 400Midvale, UT 84047
Attorney for EP Energy E&P Company, L.P
Anthony T. Hunter, Esq4715 W. CentralWichita, KS 67212
Attorney for J.P. Furlong Co
Steven F. Alder, Esq.Assistant Attorney General1594 West North Temple #300Salt Lake City, Utah 84116
[Via Email]
John DeV/itt, Jr. - Staff LandmanEP Energy E&P Company, L.P.P.O. Box 4660Houston, TX77210-4660
J.P. Furlong Co.Attn: Timothy P. FurlongP.O. Box 2357Bismarck, ND 58502
Michael S. JohnsonAssistant Attorney General1594 West North Temple #300Salt Lake City, Utah 84116
[Via Email]
Attorney for Division of Oil, Gas and Mining Attorney for Board or Oil, Gas and Mining
ROYALTY/OVERRIDNG ROYALTY OWNERS :
Burthell and Sylvia Mayhew5092 West Clay Hollow AvenueWest Jordan, UT 84081
Lany S. Lewis, Successor Trustee of theSheldon J. Lewis Living TrustP.O. Box 218Millville, UT 84326
Linda Hausknecht, Successor Trustee of theSheldon J. Lewis Living Trust2300 N. 1167 W.Layton, UT 84041
[Undeliverablel
Sherry L. Webb, Successor Trustee of theSheldon J. Lewis Living Trust470 N. 100 W., #2006Fairview, UT 84629
24
Vicki Lewis, Successor Trustee of theSheldon J. Lewis Living Trust2300 N. 1167 V/.Layton, UT 84041
IUndeliverablel
Teni Lewis McCurdy481 West 2500 SouthVemal, UT 84078
[Undeliverable]
Sheny Lewis17201Yellow Rose WayParker, CO 80134
[Undeliverablel
Ann Hoffman517 North 20th AvenueYakima, WA 98902
Randy Anderson3153 7th Place N.E., Apt.24lSalem, OR 97303
[Undeliverable]
Melvin Nord AtwoodP.O. Box 32Mack, CO 81525
[Address updated 413012015]
Christy Val AtwoodApparent Heir of Melvin and Vera Atwood505 N. 500 E.American Fork, UT 84003
[Address updated 61231 l20l5l
Theresa Scoggins, ApparentHeir of Vera Atwood1775 SunsetAvenueWest Linn, OR 97068
William D. Lewis2292East Canyon RoadSpanish Fork, UT 84660
[Undeliverablel
Jackie Lewis Penner29755 MainShedd, OR 97377
[Undeliverablel
Edward Anderson517 North 20th AvenueYakima, WA 98902
Leita E. Pine525 East 3'd NorthPleasant Grove, UT 84062
Hollis Fred Atwood711 Amethyst DriveFruita, co 81521
Cheryl K. Learfield, ApparentHeir of Vera Atwood23899 South Rondevic DriveCanby, OR 97013
Calvin Gardner,Apparent Heir of Vera Atwood566 Rio Hondo RdGrand Junction, CO 81507-1061
[Address updated 4l24ll5l
Erma Merkley, as Trusteeof the Erma Merkley Property TrustP.O. Box 484Duchesne, UT 84021
25
Daniel L. Gardner, ApparentHeir of Vera Atwood19672 Sun CircleW'est Linn, OR 97068
Maxine Rowley, Personal Representative ofthe Estate of Illa H. Sanford9801 South Lampton CircleSouth Jordan, UT 84095
Lance James Page11408 NE 113 TerLiberty, MO 64068[Add ress added 3 120 /20151
Black Stone Minerals Company, LP1001 Fannin, Suite 2020Houston, TX 77002-6709
Paul L. McCullissP.O. Box 3248Littleton, CO 80161 -3248
Harry L. Wirick, Jr., as Trustee of theMargaret S. Wirick Trust Under TrustAgreement d.8126197907 South Detroit, Suite722Tulsa, OK 74120
George G. Vaught, Jr.P.O. Box 13557Denver, CO 80201
Leo and LaReta BradyHC 63 Box 37Duchesne, UT 84021
IUndeliverablel
Michael Robert Page114 V/est CreekFredericksburg, TX 78624
Joan ThompsonTrustee of the E. Arthur HigginsLiving Family Trust dtd llll8l993446 West 5700 SouthRoy, UT 84067
[Undeliverablel
Eric Thomas PageP.O. Box 1652Topeka, KS 66601
Milam Sons' Minerals, LLCJohn B. Milam, ManagerP.O. Box 26Chelsea, OK 74016-0026
Margaret A. Slemaker, Trustee of theRichard W. Slemaker, Jr. and Margaret A.Slemaker Revocable Trust d. l0ll0l03P.O. Box 163Broken Arrow, OK 74013-0163
Mary Ellen Slemaker Benien1800 W. Granger StreetBroken Arrow, OK 74102
[Undeliverablel
Daniel S. and Penny B. Sam1104 West 1700 SouthVemal, UT 84078
Covey Minerals, Inc.Attn: Gary Nelson2733 Parleys Way, Suite 304Salt Lake City, UT 84109
26
James Orval Thomas5241 South Carpenter CoveSalt Lake City, UT 84118
Daniel and Sandra R. Sam14730 Candie LanePlymouth IN 46563-8720
[Address updated 4ll3l20l5l
Frances Sam, Heir to Joseph Sam Estate83 CR 317Oxford, MS 38655
Jacqueline Rae Dunigan,Apparent Heir of Ha:riett Sam8493 Hawthorne StreetAlta Loma, CA 91701
Alta Ann Johnsen122 Ogden Canyon RoadOgden, UT 84401
[Undeliverable]
Gary E. Griffiths5352 South 1345 rWest
Riverdale, UT 84405
Linda Gines42376 West Hwy.25Hanna, UT 84031
Lana Kemp Smith13 Wanderwood WaySandy,UT 84092
Patricia M. MotherseadP.O. Box 155Culpepper, VA 22701
[Undeliverablel
Kenneth Cope Thomas12337 Margaret Rose DriveRiverton, UT 84065
Michael Jessup Thomas2 I 87 V/ilmington CircleSalt Lake City, UT 84109-1228
Theodora Jane Cocagne,Apparent Heir of Harriett Sam1326 E. Castlecrest AvenueVisalia, CA 93292
Nancy Lou Jones,Apparent Heir of Hariet Sam1423 C StreetEureka, CA 95501
Jessup Otto and Sally Johnsenl40l I South Sands RoadValleyford, V/A 99036-8521
Wayne S. Griffiths403 East Strokes AvenueDraper, UT 84020
Gordon T. Griffiths970 North Main StreetCenterville, UT 84014
Myrl Marie Chugg2891 North 1050 EastNorth Ogden, UT 84414
Charlotte M. McGee5052 South Auckland CourtAurora, CO 80015
27
VeTar Energy2233 East 3'd AvenuePort Angeles, WA 98362
Wayne C. and Norma V/. Close LLC201 V/est 1400 SouthOrem, UT 84058
Jack D. Close, Sr. and Gay Lee Close4153 Ridgecrest DriveLas Vegas, NV 89121
Kenneth Leland and Jeanne Thom Wilkinson,Trustees for theJeanne and Kenneth L. Wilkinson Trust1040 East 900 South, #34St. George, UT 84790
Heirs and Devisees of Constance B. Gleave410 North Center StreetDuchesne, UT 84021
IUndeliverable]
Mace T. GleavePO BOX 414Ephraim UT 84627-0414
[Address updated 4 I 6 l20l5l
Kamelle Gleave385 East 300 NorthMonroe, UT 84754
Dorothy IvieP.O. Box 746Duchesne, UT 84021
Weston LaMar ThomasP.O. Box 891Duchesne, UT 84021
Voda Energy Company, LLC897 N. 2500 V/.Hurricane, UT 84737
J. Smith Investments, LLC3745 South Greenbriar WaySalt Lake City, UT 84109
Melvin D. Close Jr., as Trustee of theMelvin D. Close, Jr. Trust2l24Redbird DriveLas Vegas, NV 89134
Patricia A. Close2l24Redbird DriveLas Vegas, NV 89134
Jeff Gleave205 South Mountain View RoadMonroe, UT 84754
Maury V. Gleave755 V/est Hwy 118Monroe, UT 84754-4335
Karen T. Gleave Swindle205 South Mountain View RoadMonroe, UT 84754
Karen BabcockP.O. Box 787Duchesne, UT 84021
Walter Duncan Oil, LLC100 Park Avenue, Suite 1200Oklahoma City, OK 73102
28
Club Oil and Gas, Ltd.,LLC(formerly Club Oil & Gas, Ltd.)66 Inverness Lane EastEnglewood, CO 80112
Michael N. FairbanksMark S. Fairbanks7490 South 530 WestWillard, UT 84340
Sharla Rae Lemon(No valid address disclosed)
Emily JacobsenSuccessor Trustee of the Fees RevocableTrust dated April2,1968, as amended4526Misty DriveColorado Springs, CO 80918
Ute Tribe of Uintatr and Ouray IndianReservationEnergy & Minerals Dept.P.O. Box 70Ft. Duchesne, UT 84026
Argo Energy Partners, Ltd.P.O. Box 1808Corsicana, TX 75151
J.P. Furlong Co.P.O. Box 2357Bismarck, ND 58502
KKREP, LLCAttn: Kruise B. Kemp, PresidentP.O. Box 80942Billings, MT 89108
Raymond T. Duncan Oil Properties, Ltd.1777 S. Harrison Street, Penthouse OneDenver, CO 80210
Suzanne A. Williamson(No valid address disclosed)
Sherrie Lee Swinden(No valid address disclosed)
Antelope ORzu, LLC2441High Timbers Drive, Suite 120The Woodlands, TX 77380
Ute Distribution CorporationP.O. Box 696Roosevelt, UT 84066
Dusty Sanderson7802 BenningtonAmarillo, TX 79119
Hunt Oil Company1900 North Akard StreetDallas, TX 75201-2300
Newfield Production C ompany1001 lTth Street, Suite 2000Denver, CO 80202
UNLEASED/IION.CONSENTING/I\ON.POOLED PARTIES TO BE FORCEPOOLED:
29
WORIilNG ST O\ryNERS:
Bill Barrett CorporationAttn: David Watts1099 18th Street, Suite 2300Denver, CO 80202
Crescent Point Energy U.S. Corp.Attn: Ryan Waller555 17th Street, Suite 1800Denver, CO 80202
Linn Operating, Inc.1999 Broadway Street, Suite 3700Denver, CO 80202
Slover Minerals, L.P,3614 Royal RoadAmarillo, TX 79109
SUPERVISORY GO
Broughton Petroleum IncP.O. Box 1389Sealy, TX 77474
Croff Oil Company, Inc.16 Waterway CourtThe Woodlands, TX 77380-2641
QEP Energy Company1050 lTth Street, Suite 500Denver, CO 80265
T.C. Craighead &, CompanyP.O. Box 576Ardmore, OK 73402-0576
AGENCIES:
BIA Uintah and Ouray AgencyP.O. Box 130Fort Duchesne, UT 84026
United States Bureau of Land ManagementVernal Field OfficeAttn: Jerry Kenczka170 South 500 EastVernal, UT 84078
/,,.* 1*,f".J,/
30
A.A.P.L. FORM 610- 1989
MODEL FORM OPERATING AGREEMENT
OPERATING AGREEMENT
DATED
June 1 2014
OPERATOR EP ENERGY E&P COMPANY, L.P.
CONTRACT AREA Township 3 South, Range 5 West, USM
Section 2: ALL
COUNTY OR PARISH OF _D___;_u..:..cl_te:..os_n..:..e ________ , STATE OF _U_ta_l_t ___ _
COPYRIGHT 1989 - ALL RIGHTS RESERVED
AMERICAN ASSOCIATION OF PETROLEU!\1
LANDMEN, 4100 FOSSIL CREEK BLVD.
FORT WORTH, TEXAS, 76137, APPROVED FORM.
A.AP.L. NO. 610- 1989
XHIBIT 1
A.A.P.L. FORM 610- MODEL FORM OPERATING AGREEMENT- 1989
Article
I. II.
III.
TABLE OF CONTENTS
Title .I1!M DEFINITIONS ................................................................................................................................................ ! EXHIBITS ....................................................................................................................................................... ! INTERESTS OF PARTIES ........................................................................................................................... 2 A. OIL AND GAS INTERESTS: ................................................................................................................... 2 B. INTERESTS OF PARTIES IN COSTS AND PRODUCTION: ................................................................. 2 C. SUBSEQUENTLY CREATED INTERESTS: .......................................................................................... 2
IV. TITLES ............................................................................................................................................................ 2 A. TITLE EXAMINATION: ........................................................................................................................... 2 B. LOSS OR F AlLURE OF TITLE: ................................................................................................................ 3
I. Failure ofTitle ..................................................................................................................................... 3 2. Loss by Non-Payment or Erroneous Payment of Amount Due ........................................................... 3 3. Other Losses ........................................................................................................................................ 3 4. Curing Title ......................................................................................................................................... 3
V. OPERATOR .................................................................................................................................................... 4 A. DESIGNATION AND RESPONSIBILITIES OF OPERATOR: .............................................................. .4 B. RESIGNATION OR REMOVAL OF OPERATOR AND SELECTION OF SUCCESSOR: .................. .4
I. Resignation or Removal of0perator ................................................................................................... 4 2. Selection of Successor Operator. ......................................................................................................... 4 3. Effect of Bankruptcy ........................................................................................................................... 4
C. EMPLOYEES AND CONTRACTORS: .................................................................................................... 4 D. RIGHTS AND DUTIES OF OPERATOR: .............................................................................................. .4
I. Competitive Rates and Use of Affiliates ............................................................................................ .4 2. Discharge of Joint Account Obligations .............................................................................................. 4 3. Protection from Liens .......................................................................................................................... 4 4. Custody of Funds ................................................................................................................................ 5 5. Access to Contract Area and Records ................................................................................................. 5 6. Filing and Furnishing Governmental Reports ..................................................................................... 5 7. Drilling and Testing Operations .......................................................................................................... 5 8. Cost Estimates ..................................................................................................................................... 5 9. Insurance ............................................................................................................................................. 5
VI. DRILLING AND DEVELOPMENT ............................................................................................................. 5 A. INITIAL WELL: ......................................................................................................................................... 5 B. SUBSEQUENT OPERATIONS: ............................................................................................................... 5
1. Proposed Operations ........................................................................................................................... 5 2. Operations by Less Than All Parties ................................................................................................... 6 3. Stand-By Costs .................................................................................................................................... 7 4. Deepening ........................................................................................................................................... 8 5. Sidetracking ......................................................................................................................................... 8 6. Order of Preference of Operations ...................................................................................................... 8 7. Conformity to Spacing Pattern ............................................................................................................ 9 8. Paying Wells ....................................................................................................................................... 9
C. COMPLETION OF WELLS; REWORI<ING AND PLUGGING BACK: ................................................. 9 1. Completion .......................................................................................................................................... 9 2. Rework, Recomplete or Plug Back ..................................................................................................... 9
D. OTHER OPERATIONS: ............................................................................................................................. 9 E. ABANDONMENT OF WELLS: ................................................................................................................. 9
1. Abandonment of Dry Holes ................................................................................................................ 9 2. Abandonment of Wells That Have Produced .................................................................................... 10 3. Abandonment of Non-Consent Operations ....................................................................................... 10
F. TERMINATION OF OPERATIONS: ........................................................... : ........................................... 10 G. TAKING PRODUCTION IN KIND: ........................................................................................................ 10
(Option 1) Gas BalancingAgreement .................................................................................................... 10 (Option 2) Ne Gas Balancing Agreement .............................................................................................. 11
VII. EXPENDITURES AND LIABILITY OF PARTIES ..................................... : ........................................... 11 A. LIABILITY OF PARTIES: ...................................................................................................................... 11 B. LIENS AND SECURITY INTERESTS: ................................................................................................... I2 C. ADVANCES: ............................................................................................................................................ 12 D. DEFAULTS AND REMEDIES: ............................................................................................................... 12
1. Suspension ofRights ......................................................................................................................... 13 2. Suit for Damages ............................................................................................................................... 13 3. Deemed Non-Consent ....................................................................................................................... 13 4. Advance Payment. ............................................................................................................................. 13 5. Costs and Attorneys' Fees ................................................................................................................. 13
E. RENTALS, SHUT-IN WELL PAYMENTS AND MINIMUM ROYALTIES: ....................................... 13 F. TAXES: ..................................................................................................................................................... 13
VIII. ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST .................................................... 14 A. SURRENDER OF LEASES: .................................................................................................................... 14 B. RENEWAL OR EXTENSION OF LEASES: ........................................................................................... 14 C. ACREAGE OR CASH CONTRIBUTIONS: ............................................................................................ 14
A.A.P.L. FORM 610- MODEL FORM OPERATING AGREEMENT- 1989
TABLE OF CONTENTS
D. ASSIGNMENT; W,INTm-!ANCE 0¥ UNIFORM ll'!TEREST: .................................................... 15 E. WAIVER OF RIGHTS TO PARTITION: ......................................................................................... 15 ¥. PREl'ERm-!TIAL RIGHT TO PURCHASE: ..................................................................................... 15
IX. INTERNAL REVENUE CODE ELECTION ...................................................................................... 15 X. CLAIMS AND LAWSUITS .................................................................................................................. 15
XI. FORCEMAJEURE ............................................................................................................................... 16 XII. NOTICES................................ . ............................................................................................. 16
XIII. TERM OF AGREEMENT .................................................................................................................... 16 XIV. COMPLIANCE WITH LAWS AND REGULATIONS ..................................................................... 16
A. LAWS, REGULATIONS AND ORDERS: ........................................................................................ 16 B. GOVERNING LAW: ......................................................................................................................... 16 C. REGULATORY AGENCIES: .......................................................................................................... 16
XV. MISCELLANEOUS ............................................................................................................................... !? A. EXECUTION: .................................................................................................................................... 17 B. SUCCESSORS AND ASSIGNS: ....................................................................................................... !? C. COUNTERPARTS: ............................................................................................................................ 17 D. SEVERABILITY ................................................................................................................................ !?
XVI. OTHER PROVISIONS ......................................................................................................................... 17
ii
A.A.P.L. FORM 610- MODEL FORM OPERATING AGREEMENT- 1989
OPERATING AGREEMENT
2 1B!S AGREEMENT, entered into by and between_..,E"-P-"E"'NE"""R"G'"Y'-E"'&""'P-"C"O"'~"fl'LAaNY!.'-'.~L"."-P~. ------------~ 3 hereinafter designated and referred to as "Operator, 11 and the signatoJY party or parties other than Operator, sometimes
4 hereinafter referred to individually as "NonwOperator," and collectively as "Non-Operators."
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WITNESSETH:
\VHEREAS, the pa1iies to this agreement are owners of Oil and Gas Leases and/or Oil and Gas Interests in the land
identified in Exhibit "A," and the parties hereto have reached an agreement to explore and develop these Le<ises and/or Oil
and Gas Interests for the production of Oil and Gas to the extent and as hereinafter provided,
NOW, 1BEREFORE, it is agreed as follows:
ARTICLE I.
DEFINITIONS
As used in this agreement, the following words and terms shall have the meanings here ascribed to them:
A. The term "AFE" shall mean an Authority for Expenditure prepared by a party to this agreement for the purpose of
~fi~~l~i~"~:!\e t~~st~ .~y1 b~ i.ncurred · proposed Horizont~ \Velf
B. The term a
a{~Slh~fe~?~fi~:.~~e~~(;~y,a ~~r~z~~Ia!~[J~~~~i~~cifJt~¥i~~~ sgt~~~lfo~;Y for the
lete" shall mean a single operation intended to complete a well as a producer of Oil
and Gas in one or more Zones, including, but not limited to, the setting of production casing, perforating, well stimulation
and production testing conducted in such operation.
C. The term "Contract Area11 shall mean all of the lands, Oil and Gas Leases and/or Oil and Gas Interests intended to be
developed and operated for Oil and Gas pUtposes under this agreement. Such lands, Oil and Gas Leases and Oil and Gas
Interests are described in Exhibit nA."
D. The term 11Deepen" shall mean a single operation whereby a well is drilled to an objective Zone below the deepest
Zone i:wt;~~~~e~1r t~~e~~n~:;tYf~uA'6ti~6~l!f\v~fl g~~<~fii'ttf!l:at~r~fP~~ll~~~ete~P.f)siteiri', ~\~ella~igacJate1p~a¥tori~~j~~~·~bV is the lesser. I a Lateral IS 3n~ed to~ horizontal dJStance.~renter tllan the d!Stanc~ set out in th~ Ji"li pro~osr approv~ by tf1~ . Consentmqartff:e ~~;1~1; l1ffA1ft~~~~~~~c:n!lfeJlC~nts~~Mt~ ~~~~n~~~fits~ag;,~ ~ ~~ ,Ut~ f1g~~~s ~j~f~v~gu~{d ~~!~e1ts share of the
cost of any operation conducted under the provisions of this agreement.
F. The tem1 "Drilling Unit" shall mean the area tixed for the drilling of one well by order or mle of any state or federal
body having authority. If a Drilling Unit is not fixed by any such rule or order, a Drilling Unit shall be the drilling unit as
established by the pattern of drilling in the Contract Area unless fixed by express agreement of the Drilling Parties.
G. The term "Drillsite" shall mean the Oil and Gas Lease or Oil and Gas L1terest on \vhich a proposed well is to be
~orflf~t;n~~~~1t\Y:e~~~f~[t1~o:l~l~li ~~~~~~~1~6~1~J.hall be the oil and gas lease or leases of interes.ts within t~e spacing H. Tite tenn "Initial \\?ell" sha'fl mean the well required to be drilled by the parties hereto as provtded in Arttcle VI.A.
I. The term "Non~Consent \Velln shall mean a well in which less than all parties have conducted an operation as
provided in Article Vl.B.2.
1. TI1e tem1s "Non~Drilling Party 11 and "Non~Consenting Party'* shall mean a party who elects not to participate in a
proposed operation.
K The term "Oil and Gas" shall mean oil, gas, casinghead gas, gas condensate, and/or all other liquid or gaseous
hydrocarbons and other marketable substances produced therewith, unless an intent to limit the inclusiveness of this term is
specifically stated.
L. The term "Oil and Gas L1terests« or "Interests11 shall mean unleased fee and mineral interests in Oil and Gas in tracts
of land lying within the Contract Area v.itich are owned by parties to this agreement.
M. The terms "Oil and Gas Lease/' "Lease" and "Leasehold• shall mean the oil and gas leases or interests therein
covering tracts efland lying within the Contract Area which are owned by the parties to this agreement.
N. The term "Plug Back" shall mean a single operation whereby a deeper Zone is abandoned in order to attempt a
Completion in a shallower Zone. (See Article XVI, Definitions, Item 1, page I 7(a))
0. The tenn 11Recompletion 11 or "Recomplete" shall mean an operation \\~tereby a Completion in one Zone is abandoned
in order to attempt a Completion in a different Zone within the existing \\'ellbore.
P. The term 11Rework" shall mean an operation conducted in the wellbore of a well after it is Completed to secure,
restore, or improve production in a Zone \Wiich is currently open to production in the wellbore. Such operations include, but
are not limited to, well stimulation operations but exclude any routine repair or maintenance work or drilling, Sidetracking,
Deepening, Completing, Recompleting, or Plugging Back of a \vell.
Q. The term "Sidetrack11 shall mean the directional control and intentional deviation of a well from vertical so as to
change the bottom hole location unless done to straighten the hole or drill around junk in the hole to overcome other
mechanical difficulties.
R. The term 11Zoneu shall mean a stratum of earth containing or thought to contain a common accumulation of Oil and
v*aso5~W"rim~1tr Pf~tYJ~~~~ ~~~~r<H3tg~;~r~~Yir1g~ ... ag~ut~~laii~(~j)r.qil and Gas. . unfess the context otherwise clea~y tndtcates, woras used in the singular include the plural, the word "pers00 11 mcludes
natural and artificial persons, the plural includes the singular, and any gender includes the masculine, feminine, and neuter.
ARTICLE II.
EXHffiiTS
The following exhibits, as indicated below and attached hereto, are incorporated in and made a part hereof:
__ x_ A. Exhibit II A, n shall include the following information:
(l) Description of lands subject to this agreement,
_X_ B.
_X_ C.
_X_ D.
_x_ E.
F.
G. _x_ H.
(2) Restrictions, if any, as to depths, formations, or substances,
(3) Parties to agreement with addresses and telephone numbers for notice purposes,
(4) Percentages or fractional interests of parties to this agreement,
(5) Oil and Gas Leases and/or Oil and Gas Interests subject to this agreement,
(6) BHrcleas en preclHelien.
Exhibit nB," Fonn of Lease.
Exhibit nc, II Accounting Procedure.
Exhibit "D, u Insurance.
Exhibit "E," Gas Balancing Agreement.
ERitil:lit 11¥, 11 }len 9iseriminatien and Certifieatien ef:Nen Se0 re0 atecl Faeilities.
€.1!ti8it 110, u Th::;: Partnershif).
Other: Recordino Supplement to Operatino Aoreement and Financino Statement
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A.A.P.L. FORM 610- MODEL FORM OPERATING AGREEMENT- 1989
If any provision of any exhibit, except Exhibits nE," ~ is inconsistent with any provision contained in
2 the body of this agreement, the provisions in the body of this agreement shall prevail.
ARTICLE III.
4 INTERESTS OF PARTIES
5 A. Oil and Gas Interests:
6 If any party owns an Oil and Gas Interest in the Contract Area. that Interest shall be treated for all purposes of this
agreement and during the term hereof as if it were covered by the form of Oil and Gas Lease attached hereto as Exhibit 11B,11
and the owner thereof shall be deemed to own both royalty interest in such lease and the interest of the lessee thereunder.
9 B. Interests of Pal'ties in Costs and Production:
10 Unless changed by other provisions, all costs and liabilities incurred in operations under this agreement shall be borne
11 and paid, and all equipment and materials acquired in operations on the Contract Area shall be 0\\lned, by the patiies as their
12 interests are set forth in Exhibit "A." In the same manner, the parties shall also own all production of Oil and Gas from the
13 Contract Area subject, however, to the payment of royalties and other burdens on production as described hereafter.
14 Regardless of which party has contributed any Oil and Gas Lease or Oil and Gas Interest on which royalty or other
15 burdens may be payable and except as othef\\~se expressly provided in this agreement, each party shall pay or deliver, or
16 cause to be paid or delivered, all burdens on its share of the production from the Contract Area up to, but not in excess of.
17 burdens in existence as of the date of this aoreement and shall indemnify, defend and hold the other parties free from any liability therefor.
18 Except as otherwise expressly provided in this agreement, if any party has contributed hereto any Lease or Interest which is
19 burdened with any royalty, overriding royalty, production payment or other burden on production in excess of the amounts
20 stipulated above, such party so burdened shall assume and alone bear all such excess obligations and shall indemnify, defend
21 and hold the other parties hereto hannless from any and all claims attributable to such excess burden. However, so long as
22 the Drilling Unit for the productive Zone(s) is identical with the Contract Area, each party shall pay or deliver, or cause to
23 be paid or delivered, all burdens on production from the Contract Area due under the terms of the Oil and Gas Lease(s)
24 which such party has contributed to this agreement, and shall indemnifY, defend and hold the other parties free from any
25 liability therefor.
26 No party shall ever be responsible, on a price basis higher than the price received by such party, to any other party's
27 lessor or royalty owner, and if such other party's lessor or royalty owner should demand and receive settlement on a higher
28 price basis, the party contributing the affected Lease shall bear the additional royalty burden attributable to such higher price.
29 Nothing contained in this Article III.B. shall be deemed an assignment or cross-assignment of interests covered hereby,
30 and in the event two or more parties contribute to this agreement jointly owned Leases, the parties' undivided interests in
31 said Leaseholds shall be deemed separate leasehold interests for the purposes of this agreement.
32 C. Subsequently Created Interests:
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
If any party has contributed hereto a Lease or Interest that is burdened with an assignment of production given as security
for the payment of money, or if: after the date of this agreement, any party creates an overriding royalty, production
payment, net profits interest, assignment of production or other burden payable out of production attributable to its working
interest hereunder, such burden shall be deemed a "Subsequently Created Interest." Further, if any party has conhibuted
hereto a Lease or Interest burdened with an overriding royalty, production payment, net profits interests, or other burden
payable out of production created prior to the date of this agreement, B:fld s~:~elt i;)tcu8ea is net sLeu'R en: EnhiBit "A," such
burden also shall be deemed a Subsequently Created Interest to the extent such burden causes the burdens on such pa.rtis
Lease or Interest to exceed the an1ount stipulated in Article lli.B. above.
The party whose interest is burdened witlt the Subsequently Created Interest (the "Burdened Party") shall assume and
alone bear, pay and discharge the Subsequently Created Interest and shall indemnify, defend and hold harmless the other
parties from and against any liability therefor. Further, if the Burdened Party fails to pay, when due, its share of expenses
chargeable hereunder, all provisions of Article VII.B. shall be enforceable against the Subsequently Created Interest in the
same manner as they are enforceable against the working interest of the Burdened Party. If the Burdened Party is required
under this agreement to assign or relinquish to any other party, or parties. all or a portion of its working interest and/or the
production attributable thereto, said other party. or parties, shall receive said assignment and/or production free and clear of
said Subsequently Created Interest, and the Burdened Party shall indenmify, defend and hold harmless said other party, or
parties, from any and all claims and demands for payment asserted by owners of the Subsequently Created Interest.
ARTICLE IV.
TITLES
A. Title Examination: Drillino Unit of the ( xcluding tribal leases) . . . Title examination shall be made on the Drillsite ef an) 4 proposed well ] prior to commencement of dnllmg operattons-6:ftd;
if a majerity in interest ef the Drilling Parties sa reEfHest er 013erater se ele~ts, title .enqminatien shall he made en the entire
flrilling Unit, er rna.:irnum ruotiei13ated Drilling Unit, ef the well. TI1e eJ3T~\1inexf~JHFt~~~lude the ownership of the working
interest, minerals, royalty, overriding royalty and production payments under the applicable Leases. Each party contributing
Leases and/or Oil and Gas Interests to be included in the Drillsite or Drilling Unit, if appropriate, shall furnish to Operator
all abstracts (including federal lease status reports), title opinions, title papers and curative material in its possession free of
charge. All such information not in the possession of or made available to Operator by the parties, but necessary for the
examination of the title, shall be obtained by Operator. Operator shall cause title to be examined by attorneys on its staff or
by outside attomeys. Copies of all titl~r gfi!~~1ns /J~~~IJ\fanf~mished. to each Drilling ~a1iy. Costs incurred by O~erator in procuring abstracts, fees paid outside attorneys ru; for title examination (including preliminary, supplemental, shut-m royalty
opinions and division order title opinions) and other direct charges as provided in Exhibit "C" shall be borne by the Drilling
Parties in the proportion that the interest of each Drilling Party bears to the total interest of all Drilling Parties as such
interests appear in Exhibit "A." Operator shall make no charge for services rendered by its staff attomeys or other personnel
in the pe1formauce of the above functions.
Each party shall be responsible for securing curative matter and pooling amendments or agreements required in
68 connection with Leases or Oil and Gas Interests contributed by such party. Operator shall be responsible for the preparation
69
70
71
72
73
74
and recording of pooling designations or declarations and communitization agreen1ents as well as the conduct of hearings
before govemmental agencies for the securing of spacing or pooling orders or any other orders necessruy or appropriate to
the conduct of operations hereunder. This shall not preve~~ o~\;~r faartlcc!;;~~t~Pfearing on its own behalf at such hearings. Costs incurred by Operator, including fees paid to outside attorneys, ? whtch are associated with hearings before governmental
agencies, and which costs are necessary and proper for the activities contemplated under this agreement, shall be direct
charges to the joint account and shall not be covered by the administrative overhead charges as provided in Exhibit "C.u
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A.A.P.L. FORM 610- MODEL FORM OPERATING AGREEMENT- 1989
Operator shall make no charge for services rendered by its staff attomeys or other personnel. in the perfom1ance of the above
2 functions.
3 No well shall be drilled on the Contract Area until after (1) the title to the Drillsite or Drilling Unit, if appropriate, has
4 been examined as above provided, and (2) the title has been approved by the examining attomey or title has been accepted by
all of the Drilling Parties in such \Veil.
B. Loss or Failure of Title:
I. Failure of Title: Should any Oil and Gas Interest or Oil and Gas Lease be lost through failure of title, which results in a
reduction of interest from that shown on Exhibit 11A," the party credited with contributing the affected Lease or Interest
(including, if applicable, a successor in interest to such party) shall have ninety (90) days from final determination of title
10 failure to acquire a new lease or other instrument curing the entirety of the title failure, which acquisition will not be subject
11 to Article VIII.B., and failing to do so, this agreement, nevertheless, shaH continue in force as to all remaining Oil and Gas
12 Leases and Interests; and,
13 (a) The party credited with contributing the Oil and Gas Lease or Interest affected by the title failure (including, if
14 applicable, a successor in interest to such party) shall bear alone the entire loss and it shall not be entitled to recover from
15 Operator or the other parties any development or operating costs which it may have previously paid or incurred, but there
16 shalt be no additional liability on its prut to the other parties hereto by reason of such title failure;
17 (b) There shall be no retroactive adjustment of expenses incurred or revenues received from the operation of the
18 Lease or Interest which has failed, but the interests of the parties contained on Exhibit "A11 shall boa revised on an acreage
19 basis, as of the time it is determined finally that title failure has occurred, so that the interest of the party \\4IOse Lease or
20 Interest is affected by the title failure will thereafter be reduced in the Contract Area by the amount of the Lease or Interest failed;
21 (c) If the proportionate interest of the other parties hereto in any producing well previously drilled on the Contract
22 Area is increased by reason of the title failure, the party \lwilO bore the costs incurred in connection with such \\'ell attributable
23 to the Lease or Interest which has failed shall receive the proceeds attributable to the increase in such interest (less costs and
24 burdens attributable thereto) until it has been reimbursed for unrecovered costs paid by it in connection with such well
25 attributable to such failed Lease or Interest;
26 (d) Should any person not a party to this agreement, who is detennined to be the owner of any Lease or Interest
27 which has failed, pay in any manner any part of the cost of operation, development, or equipment1 such amount shall be paid
28 to the party or parties who bore the costs which are so refunded;
29 (e) Any liability to account to a person not a party to this agreement for prior production of Oil and Gas which arises
30 by reason of title failure shall be home severally by each party (including a predecessor to a current party) \\11o received
31 production for which such accounting is required based on the amount of such production received, and each such party shall
32 severally indemnify, defend and hold harmless all other parties hereto for any such liability to account;
33 (f) No charge shall be made to the joint account for legal expenses, fees or salaries in connection with the defense of
34 the Lease or Interest claimed to have failed, but if the party contributing such Lease or Interest hereto elects to defend its title
35 it shall bear all expenses in C<:lnnection there\vith; and
36 (g) If any party is given credit on Exhibit 11A11 to a Lease or Interest which is limited solely to ownership of an
37 interest in the wellbore of any well or wells and the production therefrom, such party's absence of interest in the remainder
38 of the Contract Area shall be considered a Failure of Title as to such remaining Contract Area unless that absence of interest
39 is reflected on Exhibit "A.•
40 2. Loss by Non·Payment or EIToneous Payment of Amount Due: If, through mistake or oversight, any rental, shut-in well
41 payment, minimum royalty or royalty payment, or other payment necessary to maintain all or a portion of an Oil and Gas
42 Lease or interest is not paid or is erroneously paid, and as a result a Lease or Interest terminates, there shall be no monetary
43 liability against the party who failed to make such payment. Unless the party who failed to make the required payment
44 secures a new Lease or Interest covering the same interest within ninety (90) days from the discovery of the failure to make
45 proper payment, which acquisition will not be subject to Article VIILB., the interests of the parties reflected on Exhibit 11 A11
46 shall be revised on an acreage basis, effective as of the date of termination of the Lease or Interest involved, and the party
47 who failed to make proper payment \vill. no longer be credited with an interest in the Contract Area on account of ownership
48 of the Lease or Interest which has terminated. If the party who failed to make the required payment shall I).Ot have been fully
49 reimbursed, at the time of the loss. from the proceeds of the sale of Oil and Gas attributable to the lost Lease or Interest,
50 calculated on an acreage basis, for the development and operating costs previously paid on account of such Lease or Interest,
51 it shall be reimbursed for unrecovered actual costs previously paid by it (but not for its share of the cost of ru1y d1y hole
52 previously drilled or wells previously abandoned) from so much of the follO\ving as is necessaty to effect reimbursement:
53 (a) Proceeds of Oil and Gas produced prior to tennination of the Lease or Interest, less operating expenses and lease
54 burdens chargeable hereunder to the person who failed to make payment, previously accrued to the credit of the lost Lease or
55 Interest, on an acreage basis, up to the amount of unrecovered costs;
56 (b) Proceeds of Oil and Gas, less operating expenses and lease burdens chargeable hereunder to the person who failed
57 to make payment, up to the amount of unrecovered costs attributable to that portion of Oil and Gas thereafter produced and
58 marketed (excluding production from any wells thereafter drilled) \\11ich, in the absence of such Lease or Interest tem1ination,
59 would be attributable to the lost Lease or Interest on an acreage basis and \\~lich as a result of such Lease or Interest
60 termination is credited to other parties, the proceeds of said portion of the Oil and Gas to be contributed by the other parties
61 in proportion to their respective interests reflected on Exhibit 11N'; and,
62 (c) Any monies, up to the amount of unrecovered costs, that may be paid by any party who is, or becomes, the owner
63 of the Lease or Interest lost, for the privilege of participating in the Contract Area or becoming a party to this agreement.
64 3. Other Losses: All losses of Leases or Interests committed to this agreement, other than those set forth in Articles
65 IV.B.l. and IV.B.2. above, shall be joint losses and shall be home by all parties in proportion to their interests shown on
66 Exhibit "A." This shall include but not be limited to the loss of any Lease or Interest through failure to develop or because
67 express or implied covenants have not been perfonned (other than performance which requires only ·the payment of money),
68 and the loss of any Lease by expiration at the end of its primary term if it is not renewed or extended. There shall be no
69 readjustment of interests in the remaining portion of the Contract Area on account of any joint loss.
70 4. Curina Title: In the event of a Failure of Title under Atiicle N.B.l. or a loss of title under Article IV.B.2. above, any
71 Lease or Interest acquired by any party hereto (other than the party whose interest has failed or was lost) during the ninety
72 (90) day period provided by Article IV.B.l. and Article IV.B.2. above covering all or a portion of the interest that has failed
73 or was lost shall be offered at cost to the party whose interest has failed or was lost, and the provisions of Article VIII.B.
74 shall not apply to such acquisition.
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2
A.A.P.L. FORM 610- MODEL FORM OPERATING AGREEMENT- 1989
ARTICLEV.
OPERATOR
3 A. Designation and Responsibilities of Operator:
4 EP ENERGY E&P COMPANY LP. shall be the Operator of the Contract Area, and shall conduct
and direct and have full control of all operations on the Contract Area as pennitted and required by, and within the limits of
6 this agreement. In its perfonnance of se1vices hereunder for the Non-Operators, Operator shall be an independent contractor
9
10
II
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
not subject to the control or direction of the Non-Operators except as to the type of operation to be undertaken in accordance
with the election procedures contained in this agreement. Operator shall not be deemed, or hold itself out as, the agent of the
Non-Operators with authority to bind them to any obligation or liability assumed or incurred by Operator as to any third
party. O~erator sh~~l conduct its activiti~s under this a~reement ~ a reasonable prud~nt opera_tor, t~b<li ~~p~ ()..1~14-eJ~~~fmanlike manner, wtth due dthgence and dispatch. m accordance wtth good oilfield practice, and m compliance wtth apphcabi~ I law and
regulation, but in no event shall it have any liability as Operator to the other patiies for losses sustained or liabilities incurred
except such as may result from gross negligence or willful misconduct.
B. Resignation or Removal of Operator and Selection of Successor:
l. Resionation or Removal of Operator: Operator may resigtl at any time by giving written notice thereof to Non-Operators.
If Operator tem1inates its legal existence, no longer 0\VtlS an interest hereunder in the Contract Area, or is no longer capable of
setving as Operator, Operator shall be deemed to have resigned without any action by Non-Operators, except the selection of a
successor. Operator may be removed only for good cause by the affirmative vote of Non-Operators ov.ning a majority interest
based on 0\Vllership as shown on Exhibit 11A « remaining after excluding the voting interest of Operator; such vote shall not be
deemed effective until a written notice has been delivered to the Operator by a Non-Operator detailing the alleged default and
Operator has failed to cure the default within thirty (30) days from its receipt of the notice or, if the default concems an
operation then being conducted, within forty~eight (48) hours of its receipt of the notice. For purposes hereof, "good cause11 shall
mean not only gross negligence or \\~llful misconduct but also the material breach of or inability to meet the standards of
operation contained in Article V.A or material failure or inability to perform its obligations under this agreement.
Subject to A1iicle VII.D.l., such resignation or removal shall not become effective until 7:00 o'clock A.M. on the first
day of the calendar month following the expiration of ninety (90) days after the giving of notice of resignation by Operator
or action by the Non-Operators to remove Operator, unless a successor Operator has been selected and assumes the duties of
Operator at an earlier date. Operator, after effective date of resignation or removal, shall be bound by the terms hereof as a
29 Non-Operator. A chrutge of a corporate name or structure of Operator or transfer of Operator's interest to any single
30 subsidiary, parent or successor corporation shall not be the basis for removal of Operator.
31 2. Selection of Successor Operator: Upon the resignation or removal of Operator under any provision of this agreement, a
32 successor Operator shall be selected by the pa1iies. The successor Operator shall be selected from the pruiies owning an
33 interest in the Contract Area at the time such successor Operator is selected. The successor Operator shall be selected by the
34 aftirmative vote of two (2) or more parties owning a majority interest based on ownership as shmvn on Exhibit 11 A";
35 provided, however, if an Operator which has been removed or is deemed to have resigned fails to vote or votes only to
36 succeed itself, the successor Operator shall be selected by the aftinnative vote of the patty or parties owning a majority
37 interest based on ownership as shown on Exhibit "A" remaining after excluding the voting interest of the Operator that \vas
38 removed or resigned. The former Operator shall promptly deliver to the successor Operator all records and data relating to
39 the operations conducted by the fom1er Operator to the extent such records and data are not already in the possession of the
40 successor operator. Al1y cost of obtaining or copying the fom1er Operator's records and data shall be charged to the joint
41 account.
42 3. Effect of Bankruptcy: If Operator becomes insolvent. bankrupt or is placed in receivership, it shall be deemed to have
43 resigned without any action by Non-Operators, except the selection of a successor. If a petition for relief under the federal
44 bankruptcy laws is filed by or against Operator, and the removal of Operator is prevented by the federal bankruptcy court, all
45 Non-Operators ru1d Operator shall comprise an interim operating committee to serve until Operator has elected to reject or
46 assume this agreement pursuant to the Bankruptcy Code, and an election to reject this agreement by Operator as a debtor in
47 possession, or by a trustee in bankruptcy~ ~hall be deemed a resignation as Operator without any action by Non-Operators,
48 except the selection of a successor. During the period of time the operating committee controls operations, all actions shall
49 require the approval of two (2) or more parties owning a majority interest based on ownership as shown on Exhibit '*A." In
50 the event there are only two (2) parties to this agreement, during the period of time the operating committee contiols
51 operations, a third pru1y acceptable to Operator, Non-Operator and the federal bankruptcy court shall be selected as a
52 member of the operating committee, and all actions shall require the approval of two (2) members of tl}e operating
53 committee without regard for their interest in the Contract Area based on Exhibit n A 11
54 C. Employees and Contractors:
55 The number of employees or contractors used by Operator in conducting operations hereunder, their selection, ru1d the
56 hours of labor and the compensation for services performed shall be detemtined by Operator, and all such employees or
57 contractors shall be the employees or contractors of Operator.
58 D. Rights and Duties of Operator:
59 I. Competitive Rates and Use of Affiliates: All wells drilled on the Contract Area shall be drilled on a competitive
60 contract basis at the usual rates prevailing in the area. If it so desires, Operator may employ its own tools and equipment in
61 the drilling of wells, but its charges therefor shall not exceed the prevailing rates in the area ru1d the rate of such charges
62 shall be agreed upon by the parties in writing before drilling operations are commenced, and such work shall be performed by
63 Operator under the same tenns and conditions as are customary and usual in the area in contracts of independent contractors
64 who are doing work of a similar nature. All work perforn1ed or materials supplied by affiliates or related parties of Operator
65 shall be perfonned or supplied at competitive rates, pursuant to \\-Titten agreement, and in accordrutce with customs ru1d
66 stru1dards prevailing in the industry.
67 2. Discharo-e of Joint Account Obligations: Except as herein othenvise specifically provided. Operator shall promptly pay
68 and discharge expenses incurred in the development and operation of the Contract Area pursuant to this agreement and shall
69 charge each of the parties hereto with their respective proportionate shares upon the expense basis provided in Exhibit nc." 70 Operator shall keep an accurate record of the joint account hereunder, shO\\~ttg expenses incurred and charges and credits
71 made and received.
72 3. Protection from Liens: Operator shall pay, or cause to be paid, as and when they become due and payable, all accounts
73 of contractors and suppliers and wages and salaries for services rendered or performed, and for materials supplied on, to or in
74 respect of the Contract Area or any operations for the joint account thereof. and shall keep the Contract Area free from
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A.A.P.L. FORM 610- MODEL FORM OPERATING AGREEMENT- 1989
liens and encumbrances resulting therefrom except for those resulting from a bona fide dispute as to services re11dered or
2 materials supplied.
3 4. Custody of Funds: Operator shall hold for the account of the Non~Operators any funds of the Non-Operators advanced
4 or paid to the Operator, either for the conduct of operations hereunder or as a result of the sale of production from the
Contract Area, and such funds shall remain the funds of the Non-Operators on whose account they are advanced or paid until
6 used for their intended purpose or otherwise delivered to the No11-0perators or applied toward the payment of debts as
7 provided in Article VII.B. Nothing in this paragraph shall be construed to establish a fiduciary relationship between Operator
and Non~Operators for any purpose other than to account for Non-Operator funds as herein specifically provided. Nothing in
9 this paragraph shall require the maintenance by Operator of separate accounts for the fw1ds of Non-Operators unless the
I 0 parties otherwise specifically agree.
11 5. Access to Contract Area and Records: Operator shall, except as otherwise provided herein, permit each Non-Operator
12 or its duly authorized representative, at the Non-Operator's sole risk and cost, full and free access at aU reasonable times to
13 all operations of every kind and character being conducted for the joint account on the Contract Area and to the records of
14 operations conducted thereon or production therefrom, including Operator's books and records relating thereto. Such access
15 rights shall not be exercised in a ma1mer interfering with Operator's conduct of an operation hereunder and shall not obligate
16 Operator to furnish any geologic or geophysical data of an interpretive nature unless the cost of preparation of such
17 interpretive data was charged to the joint account. Operator \\'ill furnish to each Non-Operator upon request copies of any
18 and all reports and information obtained by Operator in connection with production and related items, including, without
19 limitation, meter and chart reports, production purchaser statements, run tickets and monthly gauge reports, but excluding
20 purchase contracts and pricing information to the extent not applicable to the production of the Non-Operator seeking the
21 information. Any audit of Operator's records relating to amounts expended and the appropriateness of such expenditures
22
23
24
25
26
27
28
29
30
31
32
33
34
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shall be conducted in accordance with the audit protocol specified in Exhibit "C. 11
6. Filing and Furnishing Governmental Reports: Operator will file, and upon written request promptly furnish copies to
each requesting Non-Operator not in default of its payment obligations, all operational notices, reports or applications
required to be filed by local, State~ Federal or Indian agencies or authorities having jurisdiction over operations hereunder.
Each Non~Operat~r shall provide to Operator on a tin~~%pfe~~. r~~~ ~~~~~ig~~~~pfe1~~~~~~tr~~k.~Jle~apy~~~d'H~~~ such filings. 7. Drilhn(J and Testing Operations: The following proviSions s'ftau apply to each welf I dn!le3 hereunder, including but not
limited to the Initial Well: (a) Operator will promptly advise Non-Operators of the date on which the well is spudde~ or the date on which
drilling operations are commenced.
(b) Operator will send to Non-Operators such rep01ts, test results and notices regarding the progress of operations on the well
as the Non-Operators shall reasonably request. including, but not limited to. daily drilling reports, completion reports, and well logs.
(c) Operator shall adequately test all Zones encountered which may reasonably be expected to be capable of producing
Oil and Gas in paying quantities as a result of examination of the electric log or any other logs or cores or tests conducted
hereunder.
8. Cost Estimates: Upon request of any Consenting Party, Operator shaH fumish estimates of current and cumulative costs
incurred for the joint account at reasonable intervals during the conduct of any operation pursuant to this agreement.
Operator shall not be l1eld liable for errors in such estimates so long as the estimates are made in good faith.
9. Insurance: At all times while operations are conducted hereunder, Operator shall comply with the workers
compensation Jaw of the state where the operations are being conducted; provided-! however, that Operator may be a self
insurer for liability under said compensation laws in which event the only charge that shall be made to the joint account shall
be as provided in Exhibit "C." Operator shall also carry or provide insurance for the benefit of the joint account of the parties
as outlined in Exhibit "D" attached hereto and made a part hereof. Operator shall require all contractors engaged in work on
or for the Contract Area to comply with the workers compensation law of the state where the operations are being conducted
and to maintain such other insurance as Operator may require.
In the event automobile liability insurance is specified in said Exhibit "D, 11 or subsequently receives the approval of the
parties, no direct charge shall be made by Operator for premiums paid for such insurance for Operator's automotive
48 equipment.
49 ARTICLE VI.
50 DRILLING AND DEVELOPllfENT
51 A. Initial \Veil under this Agreement:
52 On or before the _l_s_t _day of _ _,o,.,c,to.,b.,e,_r _____ , __1Ql±__, Operator shall commence the drilling of the Initial
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Well at the following location:
Neihart 2-2C5 Well
Township 3 South Ranoe 5 \Vest USM
Section 2: SW/4SE/4
~~~!1~l~!1~f~~~1i~~:\~~~~~i~~e~~~~j~fs.ofthe well with due diligence to a vertical depth of 12,000 feet or to a depth sufficient to test the
The drilling of the Initial Well and the participation therein by all parties is obligatory, subject to Article VI.C.l. as to participation
in Completion operations and Article VI.F. as to termination of operations and Article XI as to occurrence of force majeure.
B. Subsequent Operations:
I. Proposed Operations: If any party hereto should desire to drill any well on the Contract Area other than the Initial \Vel!, or
if any party should desire to Rework, Sidetrack, Deepen, Recomplete or Plug Back a d1y hole or a well no longer capable of
producing in paying quantities in which such party has not otherwise relinquished its interest in the proposed objective Zone under
this agreement, the party desiring to drill, Rework, Sidetrack, Deepen, Recomplete or Plug Back such a well shall give written
notice of the proposed operation to the parties who have not otherwise relinquished their interest in such objective Zone
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A.A.P.L. FORM 610- MODEL FORM OPERATING AGREEMENT- 1989
under this agreement and to all ether parties in the case of a proposal for Sidetracking or Deepening, specifying the work to be
pe1fonned, the location, proposed depth, objective Zone and the estimated cost of the operation. The patiies to whom such a
3 notice is delivered shall have thirty (30) days after receipt of the notice within \\11ich to notify the party proposing to do the work
4 whether they elect to participate in the cost of the proposed operation. If a drilling rig is on location, notice of a proposal to
Rework, Sidetrack, Recomplete, Plug Back or Deepen may be given by telephone and the response period shall be limited to forty-
6 eight (48) hours, exclusive of Saturday, Sunday and legal holidays. Failure of a party to whom such notice is delivered to reply
within the period above fixed shall constitute an election by that party not to participate in the cost of the proposed operation.
Any proposal by a party to conduct an operation conflicting with the operation initially proposed shall be delivered to all parties
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within the time and in the manner provided in Article VI.B.6.
If all parties to whom such notice is delivered elect to participate in such a proposed operation, the parties shall be
contractually committed to participate therein P,fOV~eq such 9per~tions are commenced within the time period hereafter set
forth, and Operator shall, no later than Hi~~~ 11{9~)e./ 1d~~~ty JA~~J expiration of the notice period of thirty (30) days (or as
promptly as practicable after the expiration of the forty-eight (48) hour period when a drilling rig is on location, as the case
may be), actually commence the proposed operation and thereafter complete it with due diligence at the risk and expense of
the parties participating therein~ provided, however, said commencement date may be extended upon written notice of same
by -~perato: to .the other parties, for a period . of up tWb~~liWcaf.3s7lt;g~~~~~~~l days if,. ~n the sole o:inion of Operator, such addttlonal time Is reasonably necessaty to obtam pemuts from A govemrnental authonhes, smface nghts (including rights-of
way) or appropriate drilling equipment, or to complete title examination or curative matter required for title approval or
acceptance. If the actual operation has not been commenced within the time provided (including any extension thereof as
specifically pem1itted herein or in the force majeure provisions of Atticle XI) and if any patty hereto still desires to conduct
said operation, written notice proposing same must be resubmitted to the other parties in accordance herewith as if no prior
proposal had been made. Those parties that did not participate in the drilling of a well for which a proposal to Deepen or
Sidetrack is made hereunder shall. if such parties desire to participate in the proposed Deepening or Sidetracking operation,
reimburse the Drilling Parties in accordance with Article VI.B.4. in the event of a Deepening operation and in accordance
with Article VI.B.S. in the event of a Sidetracking operation.
2. Operations by Less Than All Parties:
(a) Determination of Participation If any party to whom such notice is delivered as provided in Article VI.B. L or
VI.C.l. (Option No. 2) elects not to participate in the proposed operation, then, in order to be entitled to the benefits of this
A1ticle, the_ party or p~ifit11§i~~8,~!~~ (Joib)e and such ~ther parties as. shall elect to participate in the operation shall, no later than mnet) (9Qj f days ::J\er tl1e exp1rahon of the notice period of tlurty (30) days (or as promptly as practicable after the
expiration of the forty-eight (48) hour period \\~len a drilling rig is on location, as the case may be) actually commence the
32 proposed operation and complete it with due diligence. Operator shall perform all \\'Ork for the account of the Consenting
33 Parties; provided, however, if no drilling rig or other equipment is on location, and if Operator is a Non-Consenting Party,
34 the Consenting Parties shall either: (i) request Operator to perform the \\'Ork required by such proposed operation for the
35 account of the Consenting Parties, or (ii) designate one of the Consenting Parties as Operator to perform such work. TI1e
36 rights and duties granted to and imposed upon the Operator under this agreement are granted to and imposed upon the party
37 designated as Operator for an operation in which the original Operator is a Non-Consenting Party. Consenting Parties, when
38 conducting operations on the Contract Area pursuant to this Article VI.B.2., shall comply with all terms and conditions of this
39 agreement.
40 If less than all parties approve any proposed operation, the proposing party, immediately after the expiration of the
41 applicable notice period, shall advise all Parties of the total interest of the parties approving such operation and its
42 recommendation as to whether the Consenting Pruiies should proceed with the operation as proposed. Each Consenting Party,
43 within forty-eight (48) hours (exclusive of Saturday, Sunday, and legal holidays) after delivery of such notice, shall advise the
44 proposing party of its desire to (i) limit participation to such party's interest as shown on Exhibit 11A" or (ii) cany only its
45 proportionate part (detem1ined by dividing such party's interest in the Contract Area by the interests of all Consenting Parties in
46 the Contract Area) of Non-Consenting Pruiies' interests, or (iii) carry its proportionate part (determined as provided in (ii)) of
47 Non-Consenting Patties' interests together with all or a portion of its proportionate part of any Non-Consenting Parties'
48 interests that any Consenting Party did not elect to take. Any interest of Non-Consenting Parties that is not carried by a
49 Consenting Party shall be deemed to be carried by the party proposing the operation if such party does not withdraw its
50 proposal. Failure to advise the proposing party within the time required shall be deemed atl election under (i). In the event a
51 drilling rig is on location, notice may be given by telephone, and the time permitted for such a response shall not exceed a
52 total of forty-eight (48) hours (exclusive of Saturday, Sunday and legal holidays). TI!e proposing party, at its election, may
53 withdraw such proposal if there is less than 100% participation and shall notify all parties of such decision within ten (10)
54 days, or within twenty-four (24) hours if a drilling rig is on location, following expiration of the applicable response period.
55 If 100% subscription to the proposed operation is obtained, the proposing pruty shall promptly notify the Consenting Pruiies
56 of their prop01tionate interests in the operation and the party serving as Operator shall commence such operation within the
57 period provided in Article VLB.l., subject to the san~e extension right as provided therein.
58 (b) Relinguislm1ent of Interest for Non-Participation. TI1e entire cost and risk of conducting such operations shall be
59 bome by the Consenting Parties in the proportions they have elected to bear same under the tem1s of the preceding
60 paragraph. Consenting Pa11ies shall keep the leasehold estates involved in such operations fi·ee ru1d clear of all liens and
61 encumbrru1ces of every kind created by or arising from the operations of the Consenting Parties. If such an operation results
62 in a dry hole, then subject to Articles Vl.B.6. and VlE.3., the Consenting Parties shall plug and abandon the well and restore
63 the surface location at their sole cost. risk and expense; provided, however, that those Non-Consenting Parties that
64 participated in the drilling, Deepening or Sidetracking of the well shall remain liable for, and shall pay, their proportionate
65 shares of the cost of plugging and abat1doning the well atld restoring the surface location insofar only as those costs were not
66 increased by the subsequent operations of the Consenting Pa1ties. If any well drilled, Reworked, Sidetracked, Deepened,
67 Recompleted or Plugged Back under the provisions of this Article results in a well capable of producing Oil and/or Gas in
68 paying quantities, the Consenting Parties shall Complete and equip the well to produce at their sole cost and risk, and the
69 well shall then be tumed over to Operator (if the Operator did not conduct the operation) ru1d shall be operated by it at the
70 expense and for the account of the Consenting Parties. Upon commencement of operations for the drilling, Reworking,
71 Sidetracking, Reeompleting, Deepening or Plugging Back of any such well by Consenting Parties in accordru1ce \\1th the
72 provisions of this Article, each Non-Consenting Party shall be deemed to have relinquished to Consenting Parties, and the
73 Consenting Parties shall own and be entitled to receive, in proportion to their respective interests, all of such Non~
74 Consenting Party's interest in the well and share of production therefrom or, in the case of a Reworking, Sidetracking,
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A.A.P.L. FORM 610- MODEL FORM OPERATING AGREEMENT- 1989
Deepening, Recompleting or Plugging Back, or a Completion pursuant to Article VI. C. 1. Option No. 2, all of such Non-
2 Consenting Pruty's interest in the production obtained from the operation in which the Non-Consenting Party did not elect
3 to participate. Such relinquishment shall be effective until the proceeds of the sale of such share~ calculated at the well, or
4 market value thereof if such share is not sold (after deducting applicable ad valorem, production, severance, and excise taxes,
royalty, overriding royalty and other interests not excepted by Atiicle III.C. payable out of or measured by the production
6 from such well accruing with respect to such interest until it reverts), shatl equal the total of the following:
(i) ___l2Q__% of each such Non-Consenting Party's share of the cost of any newly acquired surface equipment
8 beyond the wellhead connections (including but not limited to stock tanks, separators, treaters, pumping equipment and
9 piping), plus 100% of each such Non-Consenting Party's share of the cost of operation of the well commencing \\~th first
10 production and continuing until each such Non-Consenting Party's relinquished interest shall revert to it under other
1 I provisions of this Alticle, it being agreed that each Non-Consenting Pa11y's share of such costs and equipment will be that
12 interest which would have been chargeable to such Non-Consenting Party had it participated in the well from the beginning
13 of the operations; and
14 (ii) ____1.QQ__% of (a) that portion of the costs and expenses of drilling, Reworking, Sidetracking, Deepening,
15 Plugging Back, testing, Completing, and Recompleting, after deducting any cash contributions received under Article VlllC.~
16 and of (b) that portion of the cost of newly acquired equipment in the well {to and including the wellhead connections),
17 which would have been chargeable to such Non·Consenting Party if it had participated therein.
18 Notwithstanding anything to the contrary in this Article VlB., if the well does not reach the deepest objective Zone
19 described in the notice proposing the well for reasons other than the encountering of granite or practically impenetrable
20 substance or other condition in the hole rendering further operations impracticable, Operator shall give notice thereof to each
21 Non-Consenting Patty who submitted or voted for an a1temative proposal under A1iicle VlB.6. to drill the well to a
22 shallower Zone than the deepest objective Zone proposed in the notice under which the well was drilled, and each such Nonw
23 Consenting Party shall have the option to participate in the initial proposed Completion of the well by paying its share of the
24 cost of drilling the well to its actual depth, calculated in the manner provided in Article VlB.4. (a). If any such Non~
25 Consenting Party does not elect to participate in the first Completion proposed for such well, the relinquishment provisions
26 of this Article VI.B.2. (b) shall apply to such party's interest.
27 (c) Reworkinn Recompleting or Pluoging Back. An election not to participate in the drilling, Sidetracking or
28 Deepening of a well shall be deemed an election not to participate in any Reworking or Plugging Back operation proposed in
29 such a well, or portion thereof~ to which the initial non~consent election applied that is conducted at any time prior to full
30 recovery by the Consenting Parties of the Non-Consenting Party's recoupment amount Similarly, an election not to
31 participate in the Completing or Recompleting of a well shall be deemed an election not to participate in any Reworking
32 operation proposed in such a well. or portion thereof, to which the initial non~consent election applied that is conducted at
33 any time prior to full recovery by the Consenting Parties of the Non-Consenting Party's recoupment amount. Any such
34 Reworking, Recompleting or Plugging Back operation conducted during the recoupment period shall be deemed part of the
35 cost of operation of said well and there shall be added to the sums to be recouped by the Consenting Parties __JQQ_% of
36 that pmiion of the costs of the Reworking, Recompleting or Plugging Back operation which would have been chargeable to
37 such Non~Consenting Party had it participated therein. If such a Reworking, Recompleting or Plugging Back operation is
38 proposed during such recoupment period, the provisions of this Article VI.B. shall be applicable as between said Consenting
39 Parties in said well.
40 (d) Recoupment Matters. During the period of time Consenting Parties are entitled to receive Non-Consenting Party's
4 I share of production, or the proceeds therefrom, Consenting Parties shall be responsible for the payment of all ad valorem,
42 production, severance, excise, gathering and other taxes, and all royalty, overriding royalty and other burdens applicable to
43 Non-Consenting Party's share of production not excepted by Article III. C.
44 In the case of any Reworking, Sidetracking, Plugging Back, Recompleting or Deepening operation, the Consenting
45 Parties shall be permitted to use, free of cost, all casing, tubing and other equipment in the well~ but the ownership of all
46 such equipment shall remain unchat1ged; and upon abandonment of a well after such Reworking, Sidetracking, Plugging Back,
47 Recompleting or Deepening, the Consenting Parties shall account for all such equipment to, the owners thereof, with each
48 party receiving its proportionate part in kind or in value, less cost of salvage.
49 \Vithin ninety (90) days after the completion of any operation under this Article, the party conducting the operations
50 for the Consenting Parties shall furnish each Non-Consenting Party with an inventory of the equipment in and connected to
51 the well, and an itemized statement of the cost of drilling, Sidetracking, Deepening, Plugging Back, testing, Completing,
52 Recompleting, and equipping the well for production; or, at its option, the operating party, in lieu of an itemized statement
53 of such costs of operation, may submit a detailed statement of monthly billings. Each ~uf7I~~reafter, during the time the
54 Consenting Parties are being reimbursed as provided above, the party conducting the operations for the Consenting Parties
55 shall fumish the Non-Consenting Parties with an itemized statement of all costs and liabilities incmred in the operation of
56 the well, together with a statement of the quantity of Oil and Gas produced from it and the amount of proceeds realized from
57 the sale of the well's working interest production during the preceding q~~. In determining the quantity of Oil and Gas
58 produced during any month, Consenting Parties shall use industry accepted methods such as but not limited to metering or
59 periodic well tests. Any amount realized from the sale or other disposition of equipment newly acquired in cotmection with
60 any such operation which would have bee11 owned by a Non-Consenting Party had it participated therein shall be credited
61 against the total unretumed costs of the work done and of the equipment purchased in detennining when the interest of such
62 Non~Consenting Party shall revert to it as above provided; and if there is a credit balance, it shall be paid to such Non~
63 Consenting Party.
64 If and when the Consenting Parties recover from a Non~Consenting Party's relinquished interest the amounts provided
65 for above, the relinquished interests of such Non~Consenting Party shall automatically revert to it as of 7:00 a.m. on the day
66 following the day on \vhich such recoupment occurs, and, from and after such reversion, such Non~Consenting Party shaH
67 own the same interest in such well, the material and equipment in or petiaining thereto, and the production therefrom as
68 such Non-Consenting Patty would have been entitled to had it patiicipated in the drilling, Sidetracking, Reworking,
69 Deepening, Recompleting or Plugging Back of said well. Thereafter, such Non-Consenting Party shall be charged with atld
70 shalt pay its proportionate patt of the further costs of the operation of said well in accordance \\~th the tem1s of this
71 agreement and Exhibit ucu attached hereto.
72 3. Stand·By Costs: When a well which has been drilled or Deepened has reached its authorized depth and all tests have
73 been completed and the results thereof furnished to the parties, or when operations on the well have been otherwise
74 temtinated pursuant to Article VI.F., stand-by costs incurred pending response to a party's notice proposing a Reworking,
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A.A.P.L. FORM 610- MODEL FORM OPERATING AGREEMENT- 1989
Sidetracking, Deepening, Recompleting, Plugging Back or Completing operation in such a well (including the period required
2 under A1ticle VLB.6. to resolve competing proposals) shall be charged and home as part of the drilling or Deepening
3 operation just completed. Stand~by costs subsequent to all parties responding, or expiration of the response time permitted,
4 whichever first occurs, and prior to agreement as to the participating interests of all Consenting Parties pursuant to the tenns
5 of the second grammatical paragraph of Article VLB.2. (a), shall be charged to and home as part of the proposed operation,
6 but if the proposal is subsequently withdra\\~1 because of insuft1cient participation, such stand-by costs shall be allocated
7 between the Consenting Parties in the proportion each Consenting Party's interest as shown on Exhibit "A" bears to the total
interest as shown on Exhibit "A" of all Consenting Parties.
9 In the event that notice for a Sidetracking operation is given while the drilling rig to be utilized is on location, any party
10 may request and receive up to five (5) additional days after expiration of the forty-eight hour response period specified in
11 Article VI.B.l. within vAtich to respond by paying for all stand-by costs and other costs incurred during such extended
12 response period; Operator may require such party to pay the estimated stand-by time in advance as a condition to extending
13 the response period. If more than one party elects to take such additional time to respond to the notice, standby costs shall be
14 allocated between the parties taking additional time to respond on a day-to-day basis in the proportion each electing party's
15 interest as shown on Exhibit" A" bears to the total interest as shown on Exhibit 11A11 of all the electing parties.
16 4. Deepening: If less than all parties elect to participate in a drilling, Sidetracking, or Deepening operation proposed
17 pursuant to Article VI.B.l., the interest relinquished by the Non~Consenting Parties to the Consenting Parties under Article
18 VLB.2. shall relate only and be limited to the lesser of (i) the total depth actually drilled or (ii) the objective depth or Zone
19 of which the parties were given notice under Article VI.B.L ("Initial Objective"). Such well shall not be Deepened beyond the
20 Initial Objective without first complying with this Article to afford the Non~Consenting Parties the oppmtunity to participate
21 in the Deepening operation.
22 In the event any Consenting Party desires to drill or Deepen a Non-Consent Well to a depth below the Initial Objective,
23 such party shall give notice thereof, complying \\~th the requirements of Article VI.B.l., to all parties (including Non-
24 Consenting Parties). Thereupon, Articles VI.B.L and 2. shall apply and all parties receiving such notice shall have the right to
25 participate or not patiicipate in the Deepening of such well pursuant to said Articles VI.B.l. and 2. If a Deepening operation
26 is approved pursuant to such provisions, and if any Non-Consenting Party elects to participate in the Deepening operation,
27 such Non-Consenting party shall pay or make reimbursement (as the case may be) of the following costs and expenses.
28 (a) If the proposal to Deepen is made prior to the Completion of such well as a well capable of producing in paying
29 quantities, such Non-Consenting Party shall pay (or reimburse Consenting Parties for~ as the case may be) that share of costs
30 and expenses incurred in connection with the drilling of said well from the surface to the Initial Objective which Non-
31 Consenting Party would have paid had such Non-Consenting Party agreed to participate therein, plus the Non-Consenting
32 Party's share of the cost of Deepening and of participating in any further operations on the well in accordance with the other
33 provisions of this Agreement; provided, however, all costs for testing and Completion or attempted Completion of the well
34 incurred by Consenting Parties prior to the point of actual operations to Deepen beyond the Initial Objective shall be for the
35 sole account of Consenting Parties.
36 (b) If the proposal is made for a Non-Consent Well that has been previously Completed as a well capable of producing
37 in paying quantities, but is no longer capable of producing in paying quantities, such Non-Consenting Party shall pay (or
38 reimburse Consenting Parties for, as the case may be) its proportionate share of all costs of drilling, Completing, and
39 equipping said well from the surface to the Initial Objective, calculated in the matmer provided in paragraph (a) above, less
40 those costs recouped by the Consenting Parties from the sale of production from the well. TI1e Non-Consenting Party shall
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also pay its proportionate share of all costs of re-entering said well. The Non-Consenting Pruiies' proportionate part (based
on the percentage of such well Non-Consenting Party would have owned had it previously participated in such Non-Consent
Well) of the costs of salvable materials and equipment remaining in the hole and salvable surface equipment used in
connection with such well shall be detennined in accordance \vith Exhibit 11 C." If the Consenting Parties have recouped the
cost of drilling, Completing, atld equipping the well at the time such Deepening operation is conducted, then a Non
Consenting Party may patiicipate in the Deepening of the well with no payment for costs incun·ed prior to re~entering the
well for Deepening
The foregoing shall not imply a right of any Consenting Party to propose any Deepening for a Non-Consent \Veil prior
to the drilling of such well to its Initial Objective without the consent of the other Consenting Parties as provided in Article
VI. F. This Article VI.B.4 shall not apply to Deepening Operations within an existing Lateral of a HorizOntal or Multi~Lateral \Veil.
5. Sidetrackina: Any party having the right to participate in a proposed Sidetracking operation that does not own ru1
interest in the affected wellbore at the time of the notice shall, upon electing to participate. tender to the wellbore ovmers its
proportionate share (equal to its interest in the Sidetracking operation) of the value of that portion of the existing wellbore
to be utilized as follows:
(a) If the proposal is for Sidetracking <\.ll. existing dty hole, reimbursement shall be on the basis of the actual costs
incurred in the initial drilling of the well down to the ~~t which the Sidetracking operation is initiated.
(b) If the proposal is for Sidetracking a well which has previously produced, reimbursement shall be on the basis.of
such party's proportionate share of drilling and equipping costs incurred in the initial drilling of the well down to the = at which the Sidetracking operation is conducted, calculated in the matmer described in Article YLB.4(b) above. Such party's
proportionat1.shar~ of \he cost of th¢ \!l,'elts11
salvable1
materials. and. equipme11.t down 1to ':Jfich tl~e. Sidetracking
pperation ilin'i~i~~dc!g.JI ~-~;~e td~i~~~~~~~1tc~or~a~~g~ ~J1Pf!ttt~ ~rg~fJig~~ 11}ft~rufr.IE !f~fe~ n mg; ~rt~1~ 1~vhich are mtended to rec~ver penetration oflhj ftbJectJve fo(mation(s) \\1udi are con~ucted tn a Honzontal or t-Lateral !fifefl s~a~l be considered
as mcluded 6~ 8~~~~'%'f~rgf~fe':ic~d of' (j~fr~ft~~aito~~cept as otherwise specifically provided in this agreement. if any patiy desires to
propose the conduct of an operation that conflicts with a proposal that has been made by a party under this Article VI, such
party shall have fifteen (15) days fronl delivery of the initial proposal, in the case of a proposal to drill a well or to perform
an operation on a well where no drilling rig is on location, or twenty-four (24) hours, exclusive of Saturday, Sunday and legal
holidays, from delivery of the initial proposal, if a drilling rig is on location for the well on which such operation is to be
conducted, to deliver to all parties entitled to participate in the proposed operation such party's alternative proposal, such
alternate proposal to contain the srune infonnation required to be included in the initial proposal. Each party receiving such
proposals shall elect by delivery of notice to Operator within five (5) days after expiration of the proposal period, or within
twenty-four (24) hours (exclusive of Saturday, Sunday and legal holidays) if a drilling rig is on location for the well that is the
subject of the proposals, to participate in one of the competing proposals. Any party not electing within the time required
shall be deemed not to have voted. The proposal receiving the vote of parties owning the largest aggregate percentage
interest of the parties voting shall have priority over all other competing proposals; in the case of a tie vote, the
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A.A.P.L. FORM 6!0- MODEL FORM OPERATING AGREEMENT- 1989
initial proposal shall prevail. Operator shaH deliver notice of such result to all patties entitled to participate in the operation
2 within ftve (5) days after expiration of the election period (or within twenty~four (24) hours, exclusive of Saturday, Sunday
3 and legal holidays, if a drilling rig is on location). Each party shall then have two (2) days (or twenty-four (24) hours if a rig
4 is on location) from receipt of such notice to elect by delivery of notice to Operator to participate in such operation or to
relinquish interest in the affected well pursuant to the provisions of· Atticle VlB.2.; failure by a party to deliver notice within
6 such period shall be deemed an election not to participate in the prevailing proposal.
7. Conformity to Spacing Pattern Notwithstanding the provisions of this Article VLB.2., it is agreed that no wells shall be
proposed to be drilled to or Completed in or produced from a Zone from which a well located elsewhere on the Contract
9 Area is producing, unless such well confonns to the thenwexisting well spacing pattem for such Zone.
10 8. Payino- Wells. No party shall conduct any Reworking, Deepening, Plugging Back, Completion, Recompletion, or
11 Sidetracking operation under this agreement with respect to any well then capable of producing in paying quantities except
12 with the consent of all parties that have not relinquished interests in the well at the time of such operation.
13 C. Completion of\Vells; Reworking and Plugging Back:
14 1. Completion: \Vithout the consent of all parties, no well shall be drilled, Deepened or Sidetracked, except any well
15 drilled, Deepened or Sidetracked pursuant to the provisions of Article VI.B.2. of this agreement. Consent to the drilling,
16
17
18
19
20
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21 theFeef fi.IRtished te the flarties, OfleFater shall 0 i e iffime6iate netiee te the }len Ofleraters having the right te
22 flBl't:ieipate in a Cempletien atf:e£llt31 .. 4Iether er net OpeFater reeemrnenBs attempting te CeAlplete the .;ell,
23 te~ether .lith 013erater's AFB fer Cempletien eests if aet pFuieuslj pm.iBed. The t3Br:ties reeei.ing st~eh netiee
24 sl all ha.e fef!) eight (48) haHFS (e.te!Hsi.e ef SaiHFday, 8Hneay ana leoal helia!l)S) in vihieh Ia eleet hy eelioefj ef
25 Retiee te Operater te fHlliieiflate in a reeemmended Cen1pletien attempt er te mal·e a CeffifJletien prepesal • ..ith an
26 aeeemflailj in0 AFB. Operater shall deli, er ali)' s1:1el Cemp!etien fiFS.J3esal, er ailj Cempletien flFepesal eenflieting
27 .lith OperateFs prepesal, te the ather flRFties entitleS te paftieipate in s1:1eh Cempletiefl in aeeerdanee .ritft the
28 flFeeeBHres speeifietl in AFtiele VLB.S. €1eetien te 13artieif!ate in a Cemf!letiaa attea1pt shall ineltu4e eenseAt te all
29 neeessafj e. ·penBiru:res fer the Cempletin0 anEl eEJ:t:IifJI3il10 ef Slieh .. ell~ ieelt:tel.in0 neeesSBFJ tanlea0 e M4/er sl:ufaee
30 faeilities 8Ht e.:eluding aA) stinntlatien Sfleratien net eentained en the Ce~letien AFE. Failure ef any pat1)
31 reeei, ing sHeh netiee te ret3l) ,,:ithin the flerieS aS eve fhced shall eenstitete an eleetien by that J3arty net te
32 pet=tieipate in tf.e east ef the Cempletien attempt; flF8 .ided~ that .\rtiele Vl.B.S. shall eeatrel in the ease ef
33 eenflieting Cempletien: flFB!?BSals. If ene er ITlere, But less than all ef the ~arties, eleet te atternpt a Cea1pletien, the
34 ~re, isien ef Artiele VI.R2. hereef (the ~Rms.e "R-e ,;erltia.g, Sidetraeltifl.o, Deef1el'liR0 , Reeemfiletina er Pffie0 in0
35 Baele" as eentained in ;\rtiele VL8.2. shall be deen1e8 te ineiHde 11 CeR1flleting") shall apfllj te the efleFatieas
36 thereafter eenehieted 6) less than all parties; pre.iBed, he .. e,er, tl at Artiele VLB.2. shall apf!IJ seflruatel) ta eaeh
37 seflarafe CeR1pletieH er Reeempletien attempt un8eftaleen hereHnBer, ruui an eleetien te beeeffie a ~Tea Censeatin0
38 Pert) as te ene Cempletien er Reeempletien atteRlfJt shall Ret pre.ent a paFIJ freno 8eee1din0 a CeRsentia.o Part)
39 in: subseEtUeat Cempletien er Reeempletien attempts regardless • ..Betl-1er tHe Censenting PaRies as te earlier
40 Cempletiens er Reeempletiea ha e reeeufled their eests fJHffiUailt te J rtiele VI.B.2.; pra•,ided fmiher~ that Wlj
41 reeel:lfJffient ef eests bj a Censentin0 Party shall be made selely frem the flFe6ttetien attributable te the Zeae in
42 ,,hieh the Cempletien atteRlflt is fl:atle. Bleetien b:; a pre.iel.is !'Jan CeaseatiRg paff) te f!aFtieipate in a subseEJuent
43 Cempleties ar :Reeen1pletiea attem~t shall require slieh flart) te flB) its t3FBfleFtienate share ef the east ef sal.a-Me
44 materials and eqHifJment installed in the .veil flUFSt-.Iant te the pre·.ieHs Cempletien er ReeeffifJietiea attemflt,
45 insefar at18 ani) insefar as sueh materials aild equipment beeeHt the .Zeae in .rhieh st-.~eh fla:Ft) partieif!ates in a
46 Cem~letiea attem~l.
47 2. Rework Recomplete or Plucr Back: No well shall be Reworked, Recompleted or Plugged Back except a well Reworked,
48 Recompleted, or Plugged Back pursuant to the provisions of Article VLB.2. of this agreement. Consent to the Reworking,
49 Recompleting or Plugging Back of a well shall include all necessary expenditures in conducting such operations and
50 Completing and equipping of said well, including necessary tankage and/or surface facilities.
51 D. Other Operations:
52 Operator shall not undertake any single project reasonably estimated to require an expenditure in excess of ______ _
53 Seventy- Five Thousand and no/100 Dollars($ 75 000.00 ) except in connection with the
54 drilling, Sidetracking, Reworking, Deepening, Completing, Recompleting or Plugging Back of a well that has been previously
55 authorized by or pursuant to this agreement; provided, however, that, in case of explosion, fire, flood or other sudden
56 emergency, \vhether of the same or different nature, Operator may take such steps and incur such expenses as in its opinion
57 are required to deal with the emergency to safeguard life and property but Operator, as promptly as possible~ shall report the
58 emergency to the other parties. If Operator prepares an AFE for its own use~ Operator shall furnish any Non-Operator so
59 requesting an infmmation copy thereof for any single project costing in excess of Seventy- Five Thousand and no/100 Dollars
60 ($ 75 000.00 ). Any party who has not relinquished its interest in a well shall have the right to propose that
61 Operator perfom1 repair \vork or under1ake the installation of artificial lift equipment or ancillmy production facilities such as
62 salt water disposal wells or to conduct additional work with respect to a well drilled hereunder or other similar project (but
63 not including the installation of gathering lines or other transportation or marketing facilities, the installation of which shall
64 be govemed by separate agreement between the parties) reasonably estimated to require an expenditure in excess of the
65 amount first set forth above in this Article VI.D. (except in connection with an operation required to be proposed under
66 Articles Vl.B.I. or VI.C.I. Option No. 2, which shall be govemed exclusi\·ely be those A1ticles). Operator shall deliver such
67 proposal to all parties entitled to participate therein. If within thirty (30) days thereof Operator secures the \Witten consent
68 of any party or parties owning· at least 80 % of the interests of the parties entitled to participate in such operation,
69 each party having the right to participate in such project shall be bound by the terms of such proposal and shall be obligated
70 to pay its proportionate share of the costs of the proposed project as if it had consented to such project pursuant to the tenns
71 of the proposal.
72 E. Abandonment of Wells:
73 I. Abandonment of Dry Holes: Except for any well drilled or Deepened pursuant to Article VI.B.2., any well \\i1ich has
74 been drilled or Deepened under the terms of this agreement and is proposed to be completed as a dry hole shall not be
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A.A.P.L. FORM 610 -MODEL FORM OPERATING AGREEMENT -1989
plugged and abandoned without the consent of all parties. Should Operator, after diligent effort, be unable to contact any
2 party, or should any party fail to reply \wthin fmiy-eight (48) hom> (exclusive of Saturday, Sunday and legal holidays) after
3 delivery of notice of the proposal to plug and abandon such well, such party shall be deemed to have consented to the
4 proposed abandonment. All such wells shall be plugged and abandoned in accordance with applicable regulations and at the
cost, 1isk and expense of the parties who participated in the cost of drilling or Deepening such well. Any party who objects to
6 plugging and abandoning such well by notice delivered to Operator within forty-eight (48) hours (exclusive of Saturday,
7 Sunday and legal holidays) after delivery of notice of the proposed plugging shall take over the well as of the end of such
fortyMeight (48) hour notice period and conduct further operations in search of Oil ancVor Gas subject to the provisions of
9 Article VI.B.~ failure of such party to provide proof reasonably satisfactory to Operator of its financial capability to conduct
10 such operations or to take over the well within such period or thereafter to conduct operations on such well or plug and
11 abandon such well shall entitle Operator to retain or take possession of the well and plug and abandon the well. The pa1ty
12 taking over the well shall indemnify Operator (if Operator is an abandoning party) and the other abandoning parties against
13 liability for any further operations conducted on such well except for the costs of plugging and abandoning the well and
14 restOring the surface, for which the abandoning parties shall remain proportionately liable.
15 2. Abandonment of \Veils Timt Have Produced: Except for any well in \\4lich a NonMConsent operation has been
16 conducted hereunder for \vhich the Consenting Parties have not been fully reimbursed as herein provided, any well which has
17 been completed as a producer shall not be plugged and abandoned without the consent of all pa11ies. If all parties consent to
18 such abandonment, the well shall be plugged and abandoned in accordance with applicable regulations and at the cost, risk
19 and expense of all the parties hereto. Failure of a party to reply \Wihin sixty (60) days of delivery of notice of proposed
20 abandonment shall be deemed an election to consent to the proposal. If, within sixty (60) days after delivery of notice of the
21 proposed abandonment of any well, all pru1ies do not agree to the abandonment of such well, those \vishing to continue its
22 operation from the Zone then open to production shall be obligated to take over the well as of the expiration of the
23 applicable notice period and shall indemnify Operator (if Operator is an abandoning party) and the other abandoning parties
24 against liability for any further operations on the well conducted by such parties. Failure of such party or parties to provide
25 proof reasonably satisfact01y to Operator of their financial capability to conduct such operations or to take over the well
26 within the required period or thereafter to conduct operations on such well shall entitle operator to retain or take possession
27 of such well and plug and abandon the well.
28 Parties taking over a well as provided herein shall tender to each of the other parties its proportionate share of the value of
29 the well's salvable material and equipment, determined in accordance with the provisions of Exhibit 11 C, 11 less the estimated cost
30 of salvaging and the estimated cost of plugging and abandoning and restoring the surface; provided~ however, that in the event
31 the estimated plugging and abandoning and surface restoration costs and the estimated cost of salvaging are higher than the
32 value of the well's salvable material and equipment, each of the abandoning padies shall tender to the parties continuing
33 operations their proportionate shares of the estimated excess cost. Each abandoning party shall assign to the non·abandoning
34 parties, without warranty, express or implied, as to title or as to quantity, or fitness for use of the equipment and material, all
35 of its interest in the wellbore of the well and related equipment, together with its interest in the Leasehold insofar and only
36 insofar as such Leasehold covers the right to obtain production from that wellbore in the Zone then open to production. If the
37 interest of the abandoning party is or includes and Oil and Gas Interest, such party shall execute and deliver to the non·
38 abandoning party or parties an oil and gas lease, limited to the wellbore and the Zone then open to production, for a term of
39 one {l) year and so long thereafter as Oil and/or Gas is produced from the Zone covered thereby, such lease to be on the fomt
40 attached as Exhibit «B." The assignments or leases so limited shall encompass the Drilling Unit upon \\~tich the well is located.
41 The payments by, and the assignments or leases to, the assignees shall be in a ratio based upon the relationship of their
42 respective percentage of participation in the Contract Area to the aggregate of the percentages of participation in the Contract
43 Area of all assignees. 1l1ere shall be no readjustment of interests in the remaining portions of the Contract Area.
44 Thereafter, abandoning parties shall have no further responsibility, liability. or interest in the operation of or production
45 from the well in the Zone then open other than the royalties retained in any lease made under the tem1s of this Article, Upon
46 request, Operator shaH continue to operate the assigned well for the account of the non-abandoning parties at the rates and
47 charges contemplated by this agreement, plus any additional cost and charges which may arise as the result of the separate
48 ownership of the assigned well. Upon proposed abandonment of the producing Zone assigned or leased, the assignor or lessor
49 shall then have the option to repurchase its prior interest in the well (using the same valuation formula) and participate in
50 further operations therein subject to the provisions hereof.
51 3. Abandonment of Non-Consent Operations: The provisions of Article VI.E.I. or VI.E.2. above shall be applicable as
52 between Consenting Pruties in the event of the proposed abandonment of any well excepted from said Articles; provided,
53 however, no well shall be permanently plugged and abandoned unless and until all parties having the right to conduct further
54 operations therein have been notified of the proposed abandonment ru1d afforded the opportunity to elect to take over the well
55 in accordance \vith the provisions of this Atticle VI.E.~ and provided further, that Non-Consenting Parties who 0\Vll an interest
56 in a portion of the well shall pay their proportionate shares of abandonment ru1d surface restoration cost for such well as
51' provided in Article Vl.B.2.(b).
58 F. Termination of Operations:
59 Upon the commencement of an operation for the drilling, Remxking, Sidetracking, Plugging Back, Deepening, testing,
60 Completion or plugging of a well, including but not limited to the Initial \Veil, such operation shall not be tem1inated without
61 consent of parties bearing JQ_% of the costs of such operation; provided~ however~ that in the event granite or other
62 practically impenetrable substance or condition in the hole is encountered which renders further operations impractical,
63 Operator may discontinue operations and give notice of such condition in the manner provided in Article VI.B.l, and the
64 provisions of Article VI. B. or VI.E. shall thereafter apply to such operation. as appropriate.
65 G. Taldng Production in Kind:
66 0 Option No. 1: Gas Balancing Agreement Attached
67 Each party shall take in kind or separately dispose of its propmiionate share of all Oil and Gas produced from the
68 Contract Area, exclusive of production which may be used in development and producing operations and in preparing and
69 treating Oil and Gas for marketing purposes and production unavoidably lost. Any extra expenditure incurred in the taking
70 in kind or separate disposition by any pa1ty of its propmtionate share of the production shall be bome by such pruiy. Any
71 pmiy taking its share of production in kind shall be required to pay for only its proportionate share of such part of
72 Operator's surface facilities which it uses.
73 Each party shall execute such division orders and contracts as may be necessary for the sale of its interest in
74 production from the Contract Area, and, except as provided in Article VII.B., shall be entitled to receive payment
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A.A.P.L. FORM 610 -MODEL FORM OPERATING AGREEMENT -1989
directly from the purchaser thereof for its share of all production.
If any party fails to make the atTangements necessary to take in kind or separately dispose of its proportionate
share of the Oil produced from the Contract Area, Operator shall have the right, subject to the revocation at will by the party owning it. but not the obligation, to purchase such Oil or sell it to others at any time and from time to
time, for the account of the non-taking patty. Any such purchase or sale by Operator may be terminated by
Oper~tor upon. at least ten (10) days .written notice A?t1et~e(~)vner of said .producti~n and shall be subject . always to
the nght of the owner of the productton upon at least r ~ays \VT!tten notice to Operator to exerc1se at any
time its right to take in kind, or separately dispose of, its share of all Oil not previously delivered to a purchaser.
Any purchase or sale by Operator of any other party's share of Oil shall be only for such reasonable periods of time
as are consistent witl1 the minimum needs of the industry under the particular circumstances;-hut in ne event fer a
reried in e:·eess efene (1) year.
Any such sale by Operator shall be in a manner commercially reasonable under the circumstances but Operator
shall have no duty to share any existing market or to obtain a price equal to that received under any existing
market The sale or delivery by Operator of a non-taking party's share of Oil under the tenns of any existing
contract of Operator shall not give the non-taking party any interest in or make the non-taking party a party to said
contract. 'He f'l·Uehase shall be made by 013erater vritheut fiFSt giving tHe nan taldng paR) at least tea (1 Q) da) s
.rritten netiee efs~:~eh inteneled f!Hrehas~riee te Be raider the 13riein0 Basis te Be used.
All parties shall give timely written notice to Operator of their Gas marketing arrangements for the following
month, excluding price, and shall notify Operator immediately in the event of a change in such arrangements.
Operator shall maintain records of all marketing arrangements, and of volumes actually sold or transported, which
records shall be made available to Non~Operators upon reasonable request.
In the event one or more parties' separate disposition of its share of the Gas causes split-stream deliveries to separate
pipelines and/or deliveries which on a day-to-day basis for any reason are not exactly equal to a party's respective proportion~
ate share of total Gas sales to be allocated to it, the balancing or accounting between the parties shall be in accordance \vith
any Gas balancing agreement between the pruties hereto, whether such an agreement is attached as Exhibit "E" or is a
sepru·ate agreement. Operator shall give notice to all parties of the first sales of Gas from any well under this agreement.
8--0a!foo:No. 2. Ne Gas Balaneing Agreement.
'gaeh. 13aR) shall take ia Jeiad er sepBiatel; elisf!ese ef its J3fBJ3e:Ftieaete share ef all Oil anel Gas f!FBEitteeel H-em
the Centmet Area; e.;:elttsi.e ef preeluetien. ..+Iieh ffi:aj be liseel ia E!e.eleJ3rRent aRd rredlieing BJ3emtiens aml in
J3reJ3B::IiA0 anel treatin,::, Oil aRE! Gas fer ma:r!Eetit 0 J3Ulfleses anel f!Feduetiea lina.eiEiablj lest. '\ilj e.;:tra e::f!enditures
iReuA:ed in the taiEin,::, in: ltiad ar separate Eiis13esitien 13) aA) flBort) ef its rref!eFt:ieaate share ef the preduetiea shall
be Baffle b) Slieh part). J..a; pafl) taleiag its share ef preduetiea iR ldaEI shall I:Je reetaireEI ta f1BJ fer enl) its
f1FBJ3eFtienate sflEH e efs1::1ek J3ftft efOf!emter's surfaee faeilities ,vftiell it ttses.
Eaeh part) shall e.reeste saeh: Eli tisien erders MEl eeatraets as A'IB.J be Fteeessaf} fer the sale ef its iflterest ia
f3Fedaetian frem: the Centmet ).rrea, and, e.eeept as 13re tided ill Artiele VII.B., shall be entitled te reeeh e flayRlent
direetly frem the flHFehaser thereeffer its share efall preduetieA.
If BEl) f'B:Ft) fails te malee tHe arma0 ements neeessBf) ta taiEe in teind er separate!) Elispooe ef its prBf!BFtieaate
sHare af the Oil anGler Gas flFBEiueed fretl'l: the Centmet A.trea, 013emter shall ha, e tfle right, subjeet te the
re\·eeatieR at ,fill b; the 13arty e\'i'ltiag it, but net tl.e ebli0 atiefl, te fll:lrehase sHe~ Oil aadler Gas er sell it te ethers
40 at an; time B:REI frem time ta time, fer the---aeeet:~:1 t ef the nea teleiH0 f3art). '\!lj sueh I3Hrehase er sale By Opemter
41 maj' be teffllinated &, Operater Hf39A at least ten (lQ): da;s ,Titten Retiee te the e. 1 er ef said 13reduetien and shall
42 be---sHI>jeet alo~a)s ta the right ef the a .. ner ef the ~racl•etiaa ·~·· at least tea (!G) clBJs .lfittea aatiee ta Ojlerotar
43 te e.eereise its right te talee in hind, er SSfJaFatel; dispese ef. it:s share ef all Oil Bfldler Gas Hat 13re .-iettslj deli. ereS
44 te a fll:l:rehaser; J3re.ided, he .. e.er, that the effeeti,e date ef BR) sueh re.eeatiea ffitlJ be Eleferred at Of3erffier's
45 eleetien fer a f!eried net te e..eeed ninet) (9G) Eitl)s if Of!erater has eemmitted stteh fJredu.etien te a f3Hrehase
46 eentraet ha>,iag a term entending BS)end s1:1eh ten (IQ): dBJ fieri ad. At:y p1:1rehase er sale by Oflerater efany ether
47 J38R}'s share ef Oil and/.er Gas shall be enlJ fer sueh reasena.Ble fJerieds ef tiffle as are eensisteat with the
48 miaimsm needs af the indsstf) I:IREier tl e J3aftie1:1:lar eireHmstanees, but ia ne e,ent fer a f!eried in eJteess ef ene (1)
49 l"""'
50 An) su.eh sale 6; Operater shall be in a ffianaer eemmereiallj reasenaele sader the eireuffistauees, but Of!eratar
51 shalt ha.e HB duty te share an; e:istia0 ftlar!Eet er transpeFtaties arraa0 ement er te eBtain a 13riee er trEHlspeFtatiaa
52 .fee----.e.etual te that reeei.ed under an) e.tistin,::, nlaA:et er transrertatien arran0 ement. The sale er deli,ef) b)
53 Of!erater ef a nea talda0 I3afl:J 's share ef f'FBdttetien ld:Rder the tera1s ef aR) e::istin.:. eentraet ef Operater shall Ret
54 give the nan tal·ing f!Bfi:y any iAterest in er melee the nen taking party a }:!arty te saiEI eentraet. }Je pHrehase ef Oil
55 and Gas .emd ne sale ef Gas shall Be made by Operater vritheut fiFSt gi•1ing the aen talda0 f!aft) ten elB.ji s .rritten
56 netiee ef sueh intended f!Hrehase er sale and the pFiee te be f!aiEi er the flFieiA0 basis te be used. OJ3eFB:ter sHall 0 i.e
57 netiee te all J3afties efthe fiFSt sale efGas frem an) ,;ell uHEler this A0 reement.
58 All 13aFties shall give timely .. 'fitten Hetiee te Operater ef their Gas maAeetiR0 arraa0 efl'leRts far tLe falle .. ing
59 menth, e.:eluding 13riee, and shalt Hetif) Of!erater immediately in tl:e e.ent ef a ehange in sHeh aFFangements.
60 Ofleratar shall maintain reeerds ef all marketing arrangements, and ef velumes aetsaiiJ said er trru1Sflerteel, vkieh
61 reeerds shall Be made available te Nen Of!eraters UflB!l reasenae!e reetuest.
62 ARTICLE VII.
63 EXPENDITURES AND LIABILITY OF PARTIES
64 A. Liability of Parties:
65 The liability of the parties shall be several, not joint or collective. Each party shall be responsible only for its obligations,
66 and shall be liable only for its proportionate share of the costs of developing and operating the Contract Area. Accordingly, the
67 liens granted among the parties in A1iicle VII.B. are given to secure only the debts of each severally, and no party shall have
68 any liability to third parties hereunder to satisfy the default of any other party in the payment of any expense or obligation
69 hereunder. It is not the intention of the parties to create, nor shall this agreement be construed as creating, a mining or other
70 partnership, joint venture, agency relationship or association, or to render the pa1iies liable as partners, co-venturers, or
71 principals. In their relations \\~th each other under this agreement, the pa11ies shall not be considered fiduciaries or to have
72 established a confidential relationship but rather shall be free to act on an arm1s-length basis in accordance with their own
73 respective self-interest, subject, however, to the obligation of the parties to act in good faith in their dealings with each other
74 with respect to activities hereunder.
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A.A.P.L. FORM 610- MODEL FORM OPERATING AGREEMENT- 1989
B. Liens and Security Interests:
2 Each party grants to the other parties hereto a lien upon any interest it now O\vns or hereafter acquires in Oil and Gas
Leases and Oil and Gas Interests in the Contract Area, and a security interest and/or purchase money security interest in any
4 interest it now owns or hereafter acquires in the personal property and fixtures on or used or obtained for use in connection
therewith, to secure pelfonnance of all of its obligations under this agreement including but not limited to payment of expense,
6 interest and fees, the proper disbursement of aU monies paid hereunder, the assignment or relinquishment of interest in Oil
and Gas Leases as required hereunder, and the proper performance of operations hereunder. Such lien and security interest
granted by each party hereto shall include such patty's leasehold interests, working interests, operating rights, and royalty and
9 overriding royalty interests in the Contract Area now owned or hereafter acquired and in lands pooled or unitized therewith or
10 otherwise becoming subject to this agreement, the Oil and Gas when extracted therefrom and equipment situated thereon or
11 used or obtained for use in connection therewith (including, without limitation, all wells, tools, and tubular goods), and accounts
12 (including. without limitation, accounts arising from gas imbalances or from the sale of Oil and/or Gas at the wellhead),
13 contract rights, inventory and general intangibles relating thereto or arising therefrom, and all proceeds and products of the
14 foregoing.
15 To perfect the lien and security agreement provided herein, each party hereto shall execute and acknowledge the recording
16 supplement and/or any financing statement prepared and submitted by any party hereto in conjunction herewith or at any time
17 following execution hereof, and Operator is authorized to file this agreement or the recording supplement executed herewith as
18 a lien or mortgage in the applicable real estate records and as a financing statement with the proper officer under the Uniform
I 9 Commercial Code in the state in which the Contract Area is situated and such other states as Operator shall deem appropriate
20 to perfect the security interest granted hereunder. Any party may file this agreement, the recording supplement executed
21 herewith, or such other documents as it deems necessary as a lien or mortgage in the applicable real estate records and/or a
22 financing statement with the proper oftlcer under the Uniform Commercial Code.
23 Each party represents and warrants to the other parties hereto that the lien and security interest granted by such party to
24 the other parties shall be a first and prior lien, and each party hereby agrees to maintain the priority of said lien and security
25 interest against all persons acquiring an interest in Oil and Gas Leases and Interests covered by this agreement by, through or
26 under such party. All parties acquiring an interest in Oil and Gas Leases and Oil and Gas Interests covered by this agreement,
27 whether by assignment, merger, mortgage, operation of law, or otherwise, shall be deemed to have taken subject
28 to the lien and security interest granted by this Article Vll.B. as to all obligations attributable to such interest hereunder
29 whether or not such obligations arise before or after such interest is acquired.
30 To the extent that pariies have a security interest under the Uniform Commercial Code of the state in which the
31 Contract Area is situated, they shall be entitled to exercise the tights and remedies of a secured party under the Code.
32 The bringing of a suit and the obtaining of judgment by a party for the secured. indebtedness shall not be deemed an
33 election of remedies or otherwise affect the lien rights or security interest as security for the payment thereof. In
34 addition, upon default by any party in the payment of its share of expenses, interests or fees. or upon the improper use
35 of funds by the Operator, the other parties shall have the right, without prejudice to other rights or remedies, to collect
36 from the purchaser the proceeds from the sale of such defaulting party•s share of Oil and Gas until the amount owed by
37 such party, plus interest as provided in »Exhibit C," has been received, and shall have the right to offset the amount
38 owed against the proceeds from the sale of such defaulting party•s share of Oil and Gas. All purchasers of production
39 may rely on a notification of default from the non-defaulting party or parties stating the amount due as a result of the
40 default, and all parties \vaive any recourse available against purchasers for releasing production proceeds as provided in
41 this paragraph.
42 If any party fails to pay its share of cost within one hundred 1\\~nty (120) days after rendition of a statement tl1erefor by
43 Operator, the non-defaulting parties, including Operator, shall upon request by Operator, pay the unpaid amount in the
44 proportion that the interest of each such party bears to the interest of all such parties. 1l1e amount paid by each party so
45 paying its share of the unpaid amount shall be secured by the liens and security rights described in Article VII.B., and each
46 paying party may independently pursue any remedy available hereunder or othenvise.
47 If any party does not perfo1m all of its obligations hereunder, and the failure to perform subjects such party to foreclosure
48 or execution proceedings pursuant to the provisions of this agreement, to the extent allowed by governing Jaw, the defaulting
49 party waives any available right of redemption from and after the date of judgment, any required valuation or appraisement
50 of the mortgaged or secured property prior to sale, any available right to ·stay execution or to require a marshaling of assets
51 and any required bond in the event a receiver is appointed. In addition, to the extent permitted by applicable law, each party
52 hereby grants to the other parties a power of sale as to any property that is subject to the lien and security rights granted
53 hereunder, such power to be exercised in the manner provided by applicable law or otherwise in a commercially reasonable
54 ma1mer and upon reasonable notice.
55 Each party agrees that the other parties shall be entitled to utilize the provisions of Oil and Gas lien law or other lien
56 law of any state in which the Contract Area is situated to enforce the obligations of each pruiy hereunder. \Vithout limiting
57 the generality of the foregoing, to the extent permitted by applicable law, Non-Operators agree that Operator may invoke or
58 utilize the mechanics' or materialmen•s lien law of the state in which the Contract Area is situated in order to secure the
59 payment to Operator of any sum due hereunder for services performed or materials supplied by Operator.
60 C. Advances:
61 Operator, at its election, shall have the right from time to time to demand and receive from one or more of the other
62 parties payment in advance of their respective shares of the estimated amount of the expense to be incurred in operations
63 hereunder during the next succeeding month, which right may be exercised only by submission to each such party of an
64 itemized statement of such estimated expense, together \vith an invoice for its share thereof. Each such statement and invoice
65 fer the payment in advance of estimated expense shall be submitted on or before the 20th day of the next preceding month.
66 Each party shall pay to Operator its propmiionate share of such estimate within fifteen (15) days after such estimate and
67 invoice is received. If any party fails to pay its share of said estimate within said time, the amount due shall bear interest as
68 provided in Exhibit ••en until paid. Proper adjustment shall be made monthly between advances and actual expense to the end
69 that each party shall bear and pay its proportionate share of actual expenses incurred, and no more.
70 D. Defaults and Remedies:
71 If any party fails to discharge any financial obligation under this agreement, including without limitation the failure to
72 make any advance under the preceding Article VII.C. or any other provision of this agreement, within the period required for
73 such payment hereunder, then in addition to the remedies provided in Article Vll.B. or elsevvhere in this agreement, the
74 remedies specified below shall be applicable. For purposes of this Article VII.D., all notices and elections shall be delivered
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A.A.P.L. FORM 610- MODEL FORM OPERATING AGREEMENT- 1989
only by Operator, except that Operator shall deliver any such notice and election requested by a non-defaulting Non-Operator,
2 and when Operator is the party in default, the applicable notices and elections can be delivered by any Non-Operator.
Election of any one or more of the following remedies shall not preclude the subsequent use of any other remedy specified
4 below or otherwise available to a non-defaulting pa1ty.
1. Suspension of Riahts: Any party may deliver to the party in default a Notice of Default, which shall specify the default,
6 specify the action to be taken to cure the default, and specifY that failure to take such action will result in the exercise of one
or more of the remedies provided in this Article. If the default is not cured \\ithin thirty (30) days of the delivery of such
8 Notice of Default, all of the rights of the defaulting party granted by this agreement may upon notice be suspended until the
9 default is cured, without prejudice to the right of the non-defaulting party or parties to continue to enforce the obligations of
10 the defaulting party previously accrued or thereafter accruing under this agreement. If Operator is the party in default, the
11 Non-Operators shall have in addition the right, by vote of Non-Operators owning a majority in interest in the Contract Area
12 after excluding the voting interest of Operator, to appoint a new Operator effective immediately. The rights of a defaulting
13 party that may be suspended hereunder at the election of the non-defaulting pat1ies shall include, without limitation, the right
14 to receive information as to any operation conducted hereunder during the period of such default, the right to elect to
15 participate in an operation proposed under Article VI.B. of this agreement, the right to participate in an operation being
16 conducted under this agreement even if the party has previously elected to participate in such operation, and the right to
17 receive proceeds of production from any well subject to this agreement.
18 2. Suit for Damaoes: Non-defaulting parties or Operator for the benefit of non-defaulting parties may sue (at joint
19 account expense) to collect the amounts in default, plus interest accruing on the amounts recovered from the date of default
20 until the date of collection at the rate specified in Exhibit 11C 11 attached hereto. Nothing herein shall prevent any pa1ty from
21 suing any defaulting party to collect consequential dan1ages accruing to such party as a result of the default.
22 3. Deemed Non-Consent· The non-defaulting party may deliver a written Notice of Non-Consent Election to the
23 defaulting party at any time after the expiration of the thirty-day cure period following delivery of the Notice of Default, in
24 which event if the billing is for the drilling a new well or the Plugging Back, Sidetracking, Reworking or Deepening of a
25 well which is to be or has been plugged as a d1y hole, or for the Completion or Recompletion of any well, the defaulting
26 party will be conclusively deemed to have elected not to participate in the operation and to be a Non-Consenting Party with
27 respect thereto under Article VI.B. or VI.C., as the case may be, to the extent of the costs unpaid by such party,
28 notwithstanding any election to participate theretofore made. If election is made to proceed under this provision. then the
29 non-defaulting parties may not elect to sue for the unpaid amount pursuant to Article VII.D.2.
30 Until the delivery of such Notice of Non-Consent Election to the defaulting party, such party shall have the right to cure
31 its default by paying its unpaid share of costs plus interest at the rate set forth in Exhibit 11C," provided, however, such
32 payment shall not prejudice the rights of the non-defaulting parties to pursue remedies for damages incurred by the non~
33 defaulting parties as a result of the default. Any interest relinquished pursuant to this Article VII.D.3. shall be offered to the
34 non·defaulting parties in proportion to their interests, and the non-defaulting parties electing to participate in the ownership
35 of such interest shall be required to contribute their shares of the defaulted amount upo11 their election to participate therein.
36 4. Advance Payment: If a default is not cured within tl1irty (30) days of the delivery of a Notice of Default, Operator, or
37 Non-Operators if Operator is the defaulting party, may thereafter require advance payment from the defaulting
38 party of such defaulting party's anticipated share of any item of expense for which Operator, or Non~Operators, as the case may
39 be, would be entitled to reimbursement under any provision of this agreement, whether or not such expense was the subject of
40 the previous default. Such right includes, but is not limited to, the right to require advance payment for the estimated costs of
41 drilling a well or Completion of a well as to \Vhich an election to pruticipate in drilling or Completion has been made. If the
42 defaulting party fails to pay the required advance payment, the non-defaulting parties may pursue any of the remedies provided
43 in the Article VII.D. or any other default remedy provided elsewhere in this agreement. Any excess of funds advanced remaining
44 when the operation is completed and all costs have been paid shall be promptly returned to the advancing party.
45 5. Costs and Attorneys' Fees· In the event any party is required to bring legal proceedings to enforce any financial
46 obligation of a party hereunder, the prevailing party in such actio11 shall be entitled to recover all court costs, costs of
47 collection, and a reasonable attorney's fee, which the lien provided for herein shall also secure.
48 E. Rentals, Shut~in \Veil Payments and Minimum Royalties:
49 Rentals, shut-in well payments and minimum royalties which may be required under the terms of any lease shall be paid
50 by the party or parties \\41o subjected such lease to this agreement at its or their expense. In the event two or more parties
51 own and have contributed interests in the san1e lease to this agreement, such pru1ies may designate one of such parties to
52 make said payments for and on behalf of all such parties. Any party may request, and shall be entitled to receive, proper
53 evidence of all such payments. In the event of failure to make proper payment of any rental, shut-in well payment or
54 minimum royalty through mistake or oversight where such payment is required to continue the lease in force, any loss which
55 results from such non-payment shall be borne in accordance with the provisions of Article N.B.2.
56 Operator shall notit)r Non-Operators of the anticipated completion of a shut-in well) or the shutting in or return to
57 production of a producing well, at least five (5) days (excluding Saturday, Sunday, and legal holidays) prior to taking such
58 action, or at the earliest opportunity permitted by circumstances, but assumes no liability for failure to do so. In the e.ent ef
59 failure by Operater te se netii) ~len OfleFaters, the less ef any lease eentribHteel h:erete Sy }Ten OflemteFS fur failHre te make
60 tiMely flBjments ef Bll) shut in .ell flB.j'FRent sl all be beme jeintl) b) the flarties herete l:lRl'ler the }3re.isiens ef Artiele
61 w.:B+.
62 F. Taxes:
63 Beginning with the first calendar year after the effective date hereof. Operator shall render for ad valorem taxation all
64 property subject to this agreement which by law should be rendered for such taxes, and it shall pay all such taxes assessed
65 thereon before they become delinquent. Prior to the rendition date, each Non-Operator shall furnish Operator infom1ation as
66 to burdens (to include, but not be limited to, royalties, overriding royalties and production payments) on Leases and Oil and
67 Gas Interests contributed by such Non-Operator. If the assessed valuation of any Lease is reduced by reason of its being
68 subject to outstanding excess royalties, overriding royalties or production payments, the reduction in ad valorem taxes
69 resulting therefrom shall inure to the benefit of the o\vner or owners of such Lease, and Operator shall adjust the charge to
70 such owner or ovmers so as to reflect the benefit of such reduction. If the ad valorem taxes are based in whole or in pru1
71 upon separate valuations of each party's working interest, then notwithstanding anything to the contrary herein, charges to
72 the joint account shall be made and paid by the parties hereto in accordance with the tax value generated by each party's
73 working interest. Operator shall bill the other parties for their proportionate shares of all tax payments in the manner
74 provided in Exhibit "C. 11
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A.A.P.L. FORM 610- MODEL FORM OPERATING AGREEMENT- 1989
If Operator considers any tax assessment improper, Operator may, at its discretion, protest within the time and manner
2 prescribed by law, and prosecute the protest to a final determination, unless all pruiies agree to abandon the protest prior to final
determination. During the pendency of administrative or judicial proceedings, Operator may elect to pay, under protest, all such taxes
4 and any interest and penalty. When any such protested assessment shall have been finally determined, Operator shall pay the tax for
5 the joint account, together with any interest and penalty accrued, and the total cost shall then be assessed against the patiies, and be
6 paid by them, as provided in Exhibit 'C."
Each party shall pay or cause to be paid all production, severance, excise, gathering and other taxes imposed upon or with respect
8 to the production or handling of such par:cy's share of Oil and Gas produced under the terms of this agreement.
9 ARTICLE VIII.
10 ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST
11 A. Sul'render of Leases:
12 The Leases covered by this agreement, insofal' as they embrace acreage in the Contract Area, shall not be surrendered in whole
13 or in part unless all parties consent thereto.
14 However, should any party desire to surrender its interest in any Lease or in any portion thereof, such party shall give written
15 notice of the proposed surrender to all parties, and the parties to whom. such notice is delivered shall have thirty (30) days after
16 delivety of the notice ·within which to notify the party proposing the surrender whether they elect to consent thereto. Failure of a
17 party to whom such notice is delivered to reply within said 30-day period shall constitute a consent to the surrender of the Leases
18 described in the notice. If all parties do not agree or consent thereto, the party desiring to surrender shall assign, without express or
19 implied warranty of title, all of its interest in such Lease, or portion thereof, and any well, material and equipment which may be
20 located thereon and any rights in production thereafter secured, to the parties not consenting to such surrender. If the interest of the
21 assigning pa1ty is or includes an Oil and Gas Interest, the assigning party shall execute and deliver to the party or pruiies not
22 consenting to such surrender an oil and gas lease covering such Oil and Gas Interest for a term of one (1) year and so long
23 thereafter as Oil and/or Gas is produced from the land covered thereby, such lease to be on the form attached hereto as Exhibit 11B. 11
24 Upon such assignment or lease, the assigning party shall be relieved from all obligations thereafter accruing, but not theretofore
25 accrued, with respect to the interest assigned or leased and the operation of any well attributable thereto~ and the assigning party
26 shall have no further interest in the assigned or leased premises and its equipment a11d production other than the royalties retained
27 in any lease made under the terms of this Article. The party assignee or lessee shall pay to the party assignor or lessor the
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55 56
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reasonable salvage value of the latter's interest in any well's salvable materials and equipment attributable to the assigned or leased
acreage. The value of all salvable materials and equipment shall be detennined in accordance with the provisions of Exhibit 'T," less
the estimated cost of salvaging and the estimated cost of plugging and abandoning atld restoring the surface. If such value is less
than such costs, then the pruty assignor or lessor shall pay to the party assignee or lessee the amount of such deficit. If the
assignment or lease is in favor of more than one party, the interest shall be shared by such parties in the propmiions that the
interest of each bears to the total interest of all such parties. If the interest of the parties to whom the assignment is to be made
varies according to depth, then the interest assigned shaH similarly reflect such variances.
Any assignment~ lease or surrender made under this provision shall not reduce or change the assignors, lessor's or surrendering
party•s interest as it was immediately before the assignment, lease or surrender in the balance of the Contract Area; and the acreage
assigned, leased or surrendered, and subsequent operations thereon, shall not thereafter be subject to the terms and provisions of this
agreement but shall be deemed subject to an Operating Agreement in the fom1 of this agreement.
B. Renewal m· Extension of Leases:
1 whf~t~ciricft~ s~~~f~~tiJ·~~tbftra~.:f~TI~eo[r: ~tg~rnd Gas Lease or Interest subject to this agre.em~nt, then all .~parties shall be n&ifie:f promptly upon such acqmsthon or, m the case of a replacement Lease taken before exp1rahon of an ex1stmg Lease,
promptly upon expiration of the existing Lease. The parties notified shall have the right for a period of thirty (30) days following
delivety of such notice in which to elect to participate in the ownership of the renewal or replacement Lease, insofar as such Lease
affects lands within the Contract Area, by paying to the party who acquired it their proportionate shares of the acquisition cost
allocated to that part of such Lease \vithin the Contract Area. which shall be in proportion to the interest held at that time by the
parties in the Contract Area Each party who participates in the purchase of a renewal or replacement Lease shall be given an
assignment of its proportionate interest therein by the acquiring party.
If some, but less than all~ of the parties elect to participate in the purchase of a renewal or replacement Lease, it shall be mvned
by the patiies who elect to participate therein, in a ratio based upon the relationship of their respective percentage of participation in
the Contract Area to the aggregate of the percentages of participation in the Contract Area of all pa1iies participating in the
purchase of such renewal or replacement Lease. The acquisition of a renewal or replacement Lease by any or all of the patiies hereto
shall not cause a readjustment of the interests of the parties stated in Exhibit 11A, 11 but any renewal or replacement lease in which
less than all parties elect to participate shall not be subject to this agreement but shall be deemed subject to a separate Operating
Agreement in the fom1 of this agreement.
If the interests of the pruiies in the Contract Area vaty according to depth, then their right to patiicipate proportionately in
renewal or replacement Leases and their right to receive an assignment of interest shall also reflect such depth variru1ces.
The provisions of this Article shall apply to renewal or replacement Leases whether they are for the entire interest covered by
the expiring Lease or cover only a portion of its area or an interest therein. Any renewal or replacement Lease taken before the
expiration of its predecessor Lease, or taken or contracted for or becoming effective within six (6) months after the expiration of the
existing Leasej shall be subject to this provision so long as this agreement is in effect at the time of such acquisition or at the time
the renewal or replacement Lease becomes effective; but any Lease taken or contracted for more than six (6) months after the
expiration of an existing Lease shall not be deemed a renewal or replacement Lease and shall not be subject to the provisions of this
agreement.
The provisions in this Article shall also be applicable to extensions of Oil and Gas Leases.
C. Acreage or Cash Contributions:
\Vhile this agreement is in force, if atly pruty contracts for a contribution of cash towards the drilling of a well or any other
operation on the Contract Area, such contribution shall be paid to the party who conducted the drilling or other operation and shall
be applied by it against the cost of such drilling or other operation. If the contribution be in the form of acreage, the party to whom
the contribution is made shall promptly tender an assignment of the acreage. without watTanty of title, to the Drilling Parties in the
proportions said Drilling Parties shared the cost of drilling the well. Such acreage shall become a separate Contract Area and, to the
extent possible, be govemed by provisions identical to this agreement. Each party shall promptly notify all other patties of any
acreage or cash contributions it may obtain in support of any well or any other operation on the Contract Area. The above
provisions shall also be applicable to optional rights to earn acreage outside the Contract Area which are in support of well drilled
inside Contract Area,
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A.A.P.L. FORM 610- MODEL FORM OPERATING AGREEMENT- 1989
If any party contracts for any consideration relating to disposition of such party's share of substances produced hereunder,
2 such consideration shall not be deemed a contribution as contemplated in this Article VIII. C.
3 D. Assignment~ee af Unifarm InteresU
Fer the pm=pese ef maintainin.:> uflifem.it) ef e NHeFShip in the Centmet Area in tHe Oil and Gas Leases, Oil aul Gas
Interests, .. ells .. eep::1ipmeat and produetie1\ ee.ered h) this e0reemeAt ne j:larty shall sell, enel::!Rll:ler, transfer er make ether
6 ~en ef its interest ilt--the Oil and Gas Leases and Oil and Gas li•terests ernbroeed • .'ithin the Ceatmet )rea er ia .~-ells,
~eAt BREI preduetieR unless sueh Sispesitien ee .ers either:
l. tAe entire interest eftAe f3aff} ia all Oil ead Gas Leases, Oil and Gas Interests, •• ells, eqtti}31'lleAt 8:Fid pred~:~etien~ er
2. en eqt1al undi.ided pereent ef ti-e J?arf)'s 13reseat interest in ell Oil a1114 Gas Leases, Oil and G13s Interests, ,;ells,
10 eql:lipalent an.d predttetien in the Centmet ·'.rea.
11 Every sale, encumbrance, transfer or other disposition made by any party shall be made expressly subject to this agreement
12 and shall be made without prejudice to the right of the other parties, and any transferee of an ownership interest in any Oil and
13 Gas Lease or Interest shall be deemed a party to this agreement as to the interest conveyed from and after the effective date of
14 the transfer of ownership; provided, however, that the other parties shall not be required to recognize any such sale,
15 encumbrance, transfer or other disposition for any purpose hereunder until thirty (30) days after they have received a copy of the
16 instrument of transfer or other satisfactOJy evidence thereof in writing from the transferor or transferee. No assignment or other
17 disposition of interest by a party shall relieve such party of obligations previously incurred by such party hereunder with respect
18 to the interest transferred, including without limitation the obligation of a party to pay all costs attributable to an operation
19 conducted hereunder in w·hich such party has agreed to participate prior to making such assignment, and the lien and security
20 interest granted by Article VII.B. shall continue to burden the interest transfe1Ted to secure payment of any such obligations.
21 If, at any time the interest of any party is divided among and owned by four or more co-owners, Operator, at its discretion,
22 may require such co-owners to appoint a single trustee or agent with full authority to receive notices, approve expenditures,
23 receive billings for and approve and pay such party's share of the joint expenses, and to deal generally with, and with power to
24 bind, the co-owners of such party's interest \vithin the scope of the operations embraced in this agreement; however, all such co-
25 owners shall have the right to enter into and execute all contracts or agreements for the disposition of their respective shares of
26 the Oil and Gas produced from the Contract Area and they shalt have the right to receive, separately, payment of the sale
27 proceeds thereof.
28 E. \Vaiver of Rights to Partition:
29 If pennitted by the laws of the state or states in which the property covered hereby is located, each party hereto O\Vning an
30 undivided interest in the Contract Area waives any and all rights it may have to partition and have set aside to it in severalty its
31 undivided interest therein.
32 F. Pt·eferen!inl Ri0 hlla P~
33 S (Oplienol; Cheele if"!l~lieaele.)
34 SheHid ali) ~aff) flesire ta sell all er 6:11) J3&rt ef its iRterests 1:1Rfler this agreement, er its rii;;>Rts &lift interests in tke Centraet
35 Area, it shall 13rem~tly give .witten natiee te the ether J?aflies, .rith full infermatiea eeneeffiinl;;> its prepesed dispesitien, • .. 41ieh 36 shall inelHfle the tHlil'le anfl adflress ef the J3res13eeti e transferee ( .. 'he must be readj, ,lllinl;:> and able te fHiFehase). tl-:e p1:1rehase
37 ~Fiee, a legal deseri~lioa suflleieallo iJenliey !he ~Eepefl}, and all o!heE !efftls of the off<f. The otheE poflies shall thea ha.e aa
38 eptieAal prier ri 0 ht, fer a J3erieel ef tea (lQ) 85:js after tfle netiee is deli.ered, te flHrekase fer the stated eeAsideratieH ea the
39 same terms and eenditieHs the interest \'ffiieh the ether }3&rt) 13re~eses te sell; and, if this Sf3tiena1 ri0 ht is e3·ereiseel, the
40 pl:lfehasing paRies shall share the J3Hrehased interest i11 the prepertieAs that the interest ef eaeh hears te the tetal interest ef all
41 pl:lfehasing rarties. Me .. e.er, there shall bene preferential ri~llt te fll:lrehase in these eases .rhere an) J3a:Rj ,;ishes te mert0 al;;>e
42 its iAterests, er te transfer title te its interests te its mertl;;>agee ir1 lieu. ef er pHFSI:Iant te fereelesure ef a ffierte>aoe ef its interests,
43 er te Sisf)ese ef its iRterests I:Jy merger, reer0 ani2af:ien, eeflseliSatien, er b} sale ef all er sl:lbstEH•tiaUj all ef its Oil EHtri Gas assets
44 te 6Rj f16:rt}, er l:J) transfer ef its iAterests te a subsidiaf) er parent eempanJ er te a sHbsidief) ef a fla:Feat eeFRJ36:Fij, er te BRJ
45 eempaay in -.'o41ieh s~:~eh paR.)' e.rns a FRa.jeFifj efthe steel:.
46 ARTICLE IX.
47 INTERNAL REVENUE CODE ELECTION
48 If, for federal income tax purposes, this agreement and the operations hereunder are regarded as. a partnership, and if the
49 parties have not otherwise agreed to form a tax partnership pursuant to Exhibit "G" or other agreement between them, each
50 party thereby affected elects to be excluded from the application of all of the provisions of Subchapter "K," Chapter l, Subtitle
51 "A," of the Intemal Revenue Code of 1986, as amended ("Code11), as pem1itted and authorized by Section 761 of the Code and
52 the regulations promulgated thereunder. Operator is authorized and directed to execute on behalf of each party hereby affected
53 such evidence of this election as may be required by the Secretary of the Treasury of the United States or the Federal Internal
54 Revenue Service, including specifically, but not by way of limitation, all of the returns, statements, and the data required by
55 Treasury Regulation §1.761. Should there be any requirement that each party hereby affected give further evidence of this
56 election, each such party shall execute such documents and furnish such other evidence as may be required by the Federal Internal
57 Revenue Service or as may be necessary to evidence this election. No such party shall give any notices or take any other action
58 inconsistent with the election made hereby. If any present or future income tax laws of the state or states in which the Contract
59 Area is located or any future income tax laws of the United States contain provisions similar to those it1 Subchapter "K," Chapter
60 l, Subtitle "A," of the Code, under \\1tich an election similar to that provided by Section 761 of the Code is pem1itted, each party
61 hereby affected shall make such election as may be permitted or required by such laws. In making the foregoing election, each
62 such party states that the income derived by such party from operations hereunder can be adequately determined without the
63 computation of partnership taxable income.
64 ARTICLE X.
65 CLAIMS AND LA WSillTS
66 Operator may settle any single uninsured third patty damage claim or suit arising from operations hereunder if the expenditure
67 does not exceed Seventv-Five Thousand and no/1 00 Dollars ($ 75 000.00 ) and if the payment is in complete settlement
68 of such claim or suit. If the amount required for settlement exceeds the above amount, the parties hereto shall assume and take over
69 the further handling of the claim or suit, unless such authority is delegated to Operator. All costs atld expenses of handling settling,
70 or otherwise discharging such claim or suit shall be a the joint expense of the parties participating in the operation from which the
71 claim or suit arises. If a claim is made against atly party or if atly party is sued on account of any matter arising from operations
72 hereunder over which such individual has no control because of the rights given Operator by this agreement, such party shall
73 immediately notify all other parties, and the claim or suit shall be treated as any other claim or suit involving operations hereunder.
74
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A.A.P.L. FORM 610- MODEL FORM OPERATING AGREEMENT- 1989
ARTICLE XI.
2 FORCE MAJEURE
3 If any party is rendered unable, wholly or in part, by force majeure to carry out its obligations under this agreement, other
4 than the obligation to indemnify or make money payments or fumish security, that party shall give to all other parties
prompt \Witten notice of the force majeure with reasonably full particulars conceming it; thereupon, the obligations of the
6 party giving the notice, so far as they are affected by the force majeure, shall be suspended during, but no longer than, the
continuance of the force majeure. The term "force majeure,11 as here employed, shall mean an act of God, strike, lockout, or
other industrial disturbance, act of the public enemy, war, blockade, public riot, lightening, fire, stonn, flood or other act of
9 nature, explosion, govemmental action, governmental delay, restraint or inaction, unavailability of equipment, and any other
I 0 cause, whether of the kind specifically enumerated above or otherwise, which is not reasonably within the control of the party
11 claiming suspension.
12 The affected party shall use all reasonable diligence to remove the force majeure situation as quickly as practicable. The
13 requirement that any force majeure shall be remedied with all reasonable dispatch shall not require the settlement of strikes,
14 lockouts, or other labor diftlculty by the party involved, contrary to its wishes; how all such difficulties shall be handled shall
15 be entirely within the discretion of the party concerned.
16 ARTICLE XII.
17 NOTICES
18 All notices authorized or required between the parties by any of the proviStons of this agreement, unless otherwise
19 specifically provided, shall be in writing and delivered in person or by United States mail, courier service, telegram, telex,
20 telecopier or any other fom1 of facsimile, postage or charges prepaid, and addressed to such parties at the addresses listed on
21 Exhibit "A." All telephone or oral notices pem1itted by this agreement shall be confirmed immediately thereafter by written
22 notice. The originating notice given under any provision hereof shall be deemed delivered only when received by the party to
23 whom such notice is directed, and the time for such party to deliver any notice in response thereto shall run from the date
24 the originating notice is received. 11Receipt11 for purposes of this agreement with respect to written notice delivered hereunder
25 shall be actual delivery of the notice to the address of the party to be notified specified in accordance with this agreement, or
26 to the telecopy, facsimile or telex machine of such party. The second or any responsive notice shall be deemed delivered when
27 deposited in the United States mail or at the oftice of the courier or telegraph service, or upon transmittal by telex, telecopy
28 or facsimile, or when personally delivered to the party to be notified, provided, that when response is required within 24 or
29 48 hours, such response shall be given orally or by telephone, telex, telecopy or other facsimile within such period. Each party
30 shall have the right to change its address at any time, and from time to time, by giving written notice thereof to all other
31 parties. If a party is not available to receive notice orally or by telephone when a party attempts to deliver a notice required
32 to be delivered within 24 or 48 hours, the notice may be delivered in \vriting by any other method specified herein and shall
33 be deemed delivered in the same manner provided above for any responsive notice.
34 ARTICLE XIII.
35 TERl\1 OF AGREEMENT
36 This agreement shall remain in full force and effect as to the Oil and Gas Leases and/or Oil and Gas Interests subject
37 hereto for the period of time selected below; provided, however, no party hereto shall ever be construed as having any right, title
38 or interest in or to any Lease or Oil and Gas Interest contributed by any other party beyond the term of this agreement.
39 B Oetien Ne. I: Sa lang as anj ef tHe Oil and Gas Leases suhjeet te this agreem.eht remain er are eentinueS. in
40 feree as te MJ part efthe Cenh=aet "rea, okether by f3reduetien, e,;tensien, rene •• al er ethel •• ~se.
41 0 Option No. 2: In the event the well described in Article VI.A., or any subsequent well drilled under any provision
42 of this agreement, results in the Completion of a well as a well capable of production of Oil and/or Gas in paying
43 quantities, this agreement shall continue in force so long as any Such well is capable of production, and for an
44 additional period of __2Q_ days thereafter; provided, however, if, prior to the expiration of such
45 additional period, one or more of the parties hereto are engaged in drilling, Reworking, Deepening, Sidetracking,
46 Plugging Back, testing or attempting to Complete or Re-complete a well or wells hereunder, this agreement shaH
47 continue in force until such operations have been completed and if production results therefi·om, this agreement
48 shall continue in force as provided herein. In the event the well described in Article VIA, or any subsequent well
49 drilled hereunder, results in a dry hole, and no other well is capable of producing Oil and/or Gas from the
50 Contract Area, this agreement shall tenninate unless drilling, Deepening, Sidetracking, Completing, Re-
51 completing, Plugging Back or Reworking operations are commenced within 90 days fi·om the
52 date of abandonment of said well. "Abandonment" for such purposes shall mean either (i) a decision by all parties
53 not to conduct any further operations on the well or (ii) the elapse of 180 days from the conduct of any
54 operations on the well, whichever first occurs.
55 The termination of this agreement shall not relieve any party hereto from any expense, liability or ot!1er obligation or any
56 remedy therefor which has accrued or attached prior to the date of such tennination.
57 Upon termination of this agreement and the satisfaction of all obligations hereunder, in the event a memorandum of this
58 Operating Agreement has been filed of record, Operator is authorized to file of record in all necessary recording offices a
59 notice of termination, and each party hereto agrees to execute such a notice of termination as to Operator's interest, upon
60 request of Operator, if Operator has satisfied all its financial obligations.
61 ARTICLEXIV.
62 COMPLIANCE WITH LAWS AND REGULATIONS
63 A. Laws, Regulations and Orders:
64 TI1is agreement shall be subject to the applicable laws of the state in \\11ich the Contract Area is located, to the valid rules,
65 regulations, and orders of any duly constituted regulatory body of said state; and to all other applicable federal, state,
66 and local laws, ordinances, rules, regulations and orders.
67 B. Governing Law:
68 This agreement and all matters pertaining hereto, including but not limited to matters of performance, non-
69 perfonnance, breach, remedies, procedures, rights, duties, and interpretation or construction, shall be govemed and
70 detem1ined by the law of the state in which the Contract Area is located. If the Ce~th=aet "rea is in t .. e er rnare states,
71 thela .. efthestateef shallge<'eRt
72 C. Regulatory Agencies:
73 Nothing herein contained shall grant, or be construed to grant, Operator the right or authority to waive or release any
74 rights, privileges, or obligations which Non~Operators may have under federal or state laws or under rules, regulations or
"16-
A.A.P.L. FORM 610 -MODEL FORM OPERATING AGREEMENT -1989
orders promulgated under such laws in reference to oil, gas and mineral operation~, including the location, operation, or
2 production of wells, on tracts offsetting or adjacent to the Contract Area.
3 \Vith respect to the operations hereunder, Non-Operators agree to release Operator from any and all losses, damages,
4 injuries, claims and causes of action a.rising out of, incident to or resulting directly or indirectly from Operators interpretation
5 or application of rules, rulings, regulations or orders of the Depatiment of Energy or Federal Energy Regulatory Commission
6 or predecessor or successor agencies to the extent such interpretation or application was made in good faith and does not
constitute gross negligence. Each Non-Operator further agrees to reimburse Operator for such Non-Operators share of
production or any refund, fine, levy or other governmental sanction that Operator may be required to pay as a result of such
9 an incorrect interpretation or application, together with interest and penalties thereon owing by Operator as a result of such
10 incorrect interpretation or application.
II ARTICLE XV.
12 l\IISCELLANEOUS
13 A. Execution:
14 This agreement shall be binding upon each Non-Operator when this agreement or a counterpart thereof has been
15 executed by such Non-Operator and Operator notwithstanding that this agreement is not then or thereafter executed by all of
16 the parties to which it is tendered or which are listed on Exhibit "An as owning an interest in the Contract Area or which
17 own, in fact, an interest in the Contract Area. Operator may, however, by written notice to aU Non-Operators who have
18 become bound by this agreement as aforesaid, given at any time prior to the actual spud date of the Initial \Vell but in no
19 event later than five days prior to the date specified in Article VI.A. for commencement of the Initial \Veil, terminate this
20 agreement if Operator in its sole discretion detem1ines that there is insuflicient participation to justify commencement of
21 drilling operations. In the event of such a tem1ination by Operator, all further obligations of the parties hereunder shall cease
22 as of such termination. In the event any Non-Operator has advanced or prepaid any share of drilling or other costs
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hereunder, all sums so advanced shall be returned to such Non-Operator \\~thout interest. In the event Operator proceeds
with drilling operations for the Initial \Vell without the execution hereof by all persons listed on Exhibit "A11 as having a
cun·ent working interest in such well, Operator shall indemnifY Non-Operators with respeCt to all costs incurred for the
Initial \Vell which \vould have been charged to such person under this agreement if such person had executed the same and
Operator shall receive all revenues \'vhich would have been received by such person under this agreement if such person had
executed the same.
B. Successors and Assigns:
1l1is agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs,
devisees, legal representatives, successors and assigns. and the terms hereof shall be deemed to run with the Leases or
Interests included within the Contract Area.
C. Counterparts:
1l1is instrument may be executed in any number of counterparts, each of which shall be considered an original for all
purposes.
D. Severability:
For the purposes of assuming or rejecting this agreement as an executory contract pursuant to federal bankruptcy laws.
this agreement shall not be severable, but rather must be assumed or rejected in its entirety. and the failure of any party to
this agreement to comply with all of its financial obligations provided herein shall be a material default.
ARTICLE XVI.
OTHER PROVISIONS
SEE ATTACHED PAGES 17(a), 17(b), and 17(c)
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ARTICLE XVI. OTHER PROVISIONS
Attached to and made a part of that certain Model Fonn Operating Agreement ("Agreement"), dated June 1, 2014, by and between EP Energy E&P Company, L.P., as Operator, and T. C. Craighead & Company, et al, as Non-Operators, covering Section 2, Township 3 South, Range 5 West, Duchesne
County, Utah ("Contract Area").
1. **Additional Definitions/Terms**
S. The term "Lateral" shall mean that portion of a wellbore that deviates from approximate vertical orientation to approximate horizontal orientation and all wellbore beyond such deviation to Total Depth.
T. The term "Horizontal Well" shall mean a well containing a single lateral in which the wellbore deviates from approximate vertical orientation to approximate horizontal orientation in order to drill within and test a specific Zone, utilizing deviation equipment, services and technology. This shall include similar operations conducted in the reentry of an existing wellbore.
U. The tenn "Multi-Lateral Well" shall mean a well which contains more than one lateral (regardless of how much of the common wellbore is shared) and in which the well bores deviate from approximate vertical orientation to approximate horizontal orientation in order to drill within and test a specific Zone, utilizing deviation equipment, services and technology. This shall include similar operations conducted in the reentry of an existing wellbore.
V. The term "Total Depth" shall apply to all Multi-Lateral or Horizontal Wells drilled pursuant to this agreement and shall mean the distance from the surface of the ground to the tenninus of the wellbore. Each Lateral including the common vertical wellbore shall be considered a single wellbore and shall have a corresponding Total Depth. If production from a Lateral is to be measured separately and not commingled in the vertical wellbore then each Lateral shall be considered a separate wellbore. If the production from a Lateral is to be commingled in the common vertical wellbore then the Lateral(s) and vertical wellbore shall be considered collectively as a single well bore.
W. For the purposes of this agreement, as to a Horizontal or Multi-Lateral Well, the tenn "Plug Back" shall mean an operation to test or complete the well at a stratigraphically shallower Zone in which an operation has been or is being completed and which is not within an existing Lateral.
X. The tenn "Vertical Well" shall mean a well drilled, completed or recompleted other than a Horizontal Well or a Multi-Lateral Well.
Y. The tenn "Open Additional Pay Zone" shall mean an operation to attempt a Completion in a different Zone(s) within an existing wellbore of a Vertical Well without plugging back or abandoning other Completed Zone(s); this is not deemed a Recompletion.
2. Sidetracking:
Notwithstanding the provisions of Article VI.B.5, "Sidetracking", such paragraph shall not be applicable to operations in the Lateral portion of a Horizontal or Multi-Lateral Well. Drilling operations which are intended to recover penetration of the objective Zone which are conducted in a Lateral, Horizontal or Multi-Lateral Well shall be considered as included in the original proposed drilling operations.
3. Model Form Recording Supplement to Operating Agreement and Financing Statement:
Each party to this agreement ratifies and agrees to execute a "Model Fonn Recording Supplement to Operating Agreement and Financing Statement" ("Recording Supplement") in the fonn attached hereto as Exhibit "H" simultaneously with their execution of this agreement. Each party further authorizes the Operator to file such Recording Supplement in the appropriate records of the county or counties where the Contract Area is located and in the Unifonn Commercial Code records of the appropriate Secretary of State's office and/or such other records as may be required under applicable state law to fully perfect the security interests created herein.
4. Priority of Operations:
If at any time there is more than one operation proposed in connection with any well subject to this agreement, then unless all participating parties agree on the sequence of such operations, such proposals shall be considered and disposed of in the following order of priority:
1. Proposals to do additional testing, coring or logging. 2. Proposals to attempt a horizontal Completion in the objective Zone.
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3. Proposals to attempt a Completion in the objective Zone. 4. Proposals to Plug Back and attempt Completions in shallower Zones, in ascending order. 5. Proposals to Deepen the well, in descending order. 6. Proposals to Sidetrack the well.
Parties electing to do additional testing, coring or logging which is in excess of customary oil field practice as performed by a reasonable and prudent operator shall indenmify the parties not participating against the loss of the hole. The parties not participating in such additional testing as contemplated in Article XVI.4.1. above shall not be entitled to receive the logs and other data resulting from such tests. After the additional logging, coring or testing is performed, each participating and non-participating party shall then be given a re-election to participate in the next proposed operation until such time as a decision is made by all parties to attempt a Completion or to plug and abandon the well. If the decision is made to plug and abandon the well before a Completion attempt has been made, the parties who participated in the drilling of the well shall be responsible for their proportionate share of the plugging and abandoning costs.
With respect to any single well, no party may propose conducting any new operation on such well while there is in progress any operation on such well until such operation has been completed.
This Article XVI.4 is intended to apply only after reaching authorized Total Depth or the objective Zone and prior to completion of a well as a producer and does not apply to any well !hat has been completed as a producer.
5. Statements and Billings:
Notwithstanding any provision contained herein or in any exhibit attached to the contrary, it is specifically agreed between the parties hereto that Operator shall be required to render statements and billings only to the undersigned parties for costs and expenses chargeable to their interests as set out herein. Any party who disposes of a part of its interest to greater than two assignees, shall be solely responsible for invoicing and collecting from its assignees; provided, however, such party and its assignees may designate in writing a new party from their group, acceptable to Operator, to receive statements and billings and pay Operator for costs and expenses chargeable to the entire interest originally credited herein to such party.
6. Bankruptcy:
If, following the granting of relief under the Bankruptcy Code to any party hereto as debtor thereunder, this agreement should be held to be an executory contract within the meaning of 11 U.S. C. 365, then the Operator, or (if the Operator is the debtor in bankruptcy) any other party, shall be entitled to a determination by debtor or any trustee for debtor within thirty (30) days from the date an order for relief is entered under the Bankruptcy Code as to the rejection or assumption of this agreement. In the event of an assumption, Operator or said other party shall be entitled to adequate assurance as to future performance of debtor's obligation hereunder and the protection of the interest of all other parties.
7. Rights Suspended:
If a Non-Operator has a past-due balance of sixty (60) days or greater, and the lien conferred in Article VII.B. has been enforced by notice from the Operator to the defaulting Non-Operator, for so long as the affected party remains in default, it shall have no fhrther access to the Contract Area or information obtained in connection with operations hereunder and shall not be entitled to vote on any matter hereunder. Unless Operator has been notified in writing by Non-Operator of a grievance over an alleged "past due balance" or "default" which is then being negotiated, as to any proposed operation in which it otherwise would have the right to participate, such party shall have the right to be a Consenting Party therein only if it pays the amount it is in default before the operation is commenced; otherwise, it automatically shall be deemed a Non-Consenting Party to that operation. If the Operator becomes in default under the terms and conditions of this agreement, the terms of this Article XVI.7 shall also apply to said Operator.
8. Insurance:
Notwithstanding any provision contained in this agreement to the contrary, each Non-Operator(s) is required relating to any drilling or completing of wells or subsequent operations on the Contract Area to obtain any or all insurance coverage(s) it desires to protect against risks to which it or its interests may be exposed. Such coverage(s) shall be secured at Non-Operator(s) sole cost and will protect and insure only Non-Operator(s) and its interests. It shall be the responsibility of NonOperator(s) to provide Operator with a Certificate oflnsurance.
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9. Maintenance of Uniform Interest:
In the event any party hereto creates a necessity for separate measurement facilities by virtue of any encumbrance or conveyance, the assignee shall alone bear the costs of acquisition, operation, maintenance and repair of such facility.
10. Open Additional Pay Zone:
Any party to this agreement may propose to the other parties a subsequent operation to Open Additional Pay Zone(s), regardless of whether the well is capable of producing or is producing in paying quantities. Notwithstanding any provision in the agreement to the contrary, including without limitation, the provision of Articles VI.B, VI.C and VI.E hereof, an operation to Open Additional Pay Zone(s) may be conducted on a previously drilled well that is capable of producing or is producing in paying quantities upon written approval of seventy-five percent (75%) or more of the working interest in the well. The proposal and election for an operation to Open Additional Pay Zone(s) shall be made in the same manner as outlined in Article VI.B.l except such proposal shall expressly additionally include a description of the procedure and an AFE. If approved by the necessary vote, Operator shall immediately notifY all parties and all parties shall be bound by the election to approve the proposed operation to Open Additional Pay Zone(s) and obligated to bear their proportionate share of the costs and expenses therefor regardless of whether a party originally elected not to participate in said operation. In the event an operation to Open Additional Pay Zone(s) is proposed in a well in which there are existing Non-Consenting Parties pursuant to Article VI.B.2, the proposal must be approved by seventy-five percent (75%) or more of the combined working interest of all existing Consenting Parties in the well, which approval vote shall be binding on all Consenting Parties, and the costs and expenses of such operation to Open Additional Pay Zone(s) attributable to the Non-Consenting Parties shall be added to the amounts to be recouped by the Consenting Parties pursuant to Article VI.B.2(b )(ii).
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A.A.P.L. FORM 610- MODEL FORM OPERATING AGREEMENT- 1989
IN WITNESS WHEREOF, this agreement shall be effective as of the _l_st __ day of_,J,_,u"'n,e~-----•
1!ill...._.
EP Enere:v E&P Conmanv. L.P. , who has prepared and circulated tl1is form for execution, represents and warrants tlmt the form was printed from and, with tl1e exception(s) listed below, is identical to the AAPL Fonn610-1989 Model Fmm Operating Agreement, as published in computerized fom1 by Fonns On-A-Disk, Inc. No changes, alterations, or modifications, other than tlwse made by striketlu·ough and/or insertion and tl1at are clearly recognizable as changes in Articles as amended thererin have been made to the fonn.
ATTEST OR WITNESS: OPERATOR
EP ENERGY E&P COMPANY, L.P.
By ______________________________ __
Thomas L. Muchard Type or print name
Title Agent and Attorney-in-Fact
Date------------------
Tax ID or S.S. No. _4:..:5c...-4.:..:8:..:6.c:.58"'5:c.:S'---------
NON-OPERATORS
T. C. CRAIGHEAD & COMPANY
By ______________________________ __
Type or plint name
Title-----------------
Date------------------
Tax ID or S.S. No. --'7"-3--=0"-78=-'7'-=2=13=--------
SLOVER MINERALS, L.P.
By _____________________________ __
Type or print name
Title _________________ _
Date------------------
Tax ID or S.S. No. ...:2:..:0...::-5c:l.:c62:c.:8:..:03=--------
BROUGHTON PETROLEUM INC.
By ________________ _
Type or print nan1e
Title------------------
Dare _________________ _
Tax ID or S.S. No. -'7-"6-'-0"-3-'-76'-'7-"2--'-4 ______ _
-!Sa-
EXHIBIT"A"
Attached to and made a part of that certain Model Form Operating Agreement ("Agreement"), dated June I, 2014, by and betweenEP Energy E&P Company, L.P., as Operator, and Linn
Operating, Inc., as Non-Operator, covering Section 2, Township 3 South, Range 5 West, Duchesne County, Utah ("Contract Area").
I. Lands subject to this Agreement ("Contract Area"):
Township 3 South. Range 5 West, USM Section 2: All Containing 639.04 acres, more or less
All of the above lands being situated in Duchesne County, Utah.
II. Restrictions as to Depths and Fmmations:
Limited to the interval from the top of the Lower Green River formation (TGR3 marker) to the base of the Green River-Wasatch formations (top of Cretaceous), which base is defined as the stratigraphic equivalent of the Dual Induction Log depths of 16,720 feet in the Shell, Ute l-18B5 well located in the S2NE4 of Section 18, Township 2 South, Range 5 West, U.S.M., and 16,970 feet in the Shell, Brotherson l-11B4 well located in S2NE4 of Section 11, Township 2 South, Range 4 West, U.S.M.
III. Working interests of the parties in the Contract Area:
NAME OF PARTY WORKING INTEREST
EP Energy E&P Company, L.P. 59.121597% Bill Barrett Corporation 15.625668% Crescent Point Energy U.S. Corp.' 15.625668% QEP Energy Compani 8.803439% KKREP,LLC1 0.120689% J.P. FURLONG CO.' 0.120689% T. C. Craighead & Company1 0.113146% Slover Minerals, L.P.1 0.113146% Broughton Petroleum Inc. 0.113146% Linn Operating, Inc. 0.066304% Croff Oil Company, Inc.1 0.063362% Argo Energy Partners, Ltd. 0.056573% Dusty Sanderson 0.056573%
TOTAL 100.000000%
If and to the extent any of the Parties fail to execute this Agreement, and notwithstanding any other provision contained in this Agreement, EP Energy, as Operator, alone shall be responsible to bear all costs and expenses attributable to said non-executing Patiy's/Parties' interest(s) for purposes of this Agreement, but also shall be alone entitled to the benefits of any risk compensation award under separate agreement or by force pooling order of a governmental agency having jurisdiction over the Contract Area, until recoupment of all such borne costs and expenses plus said award.
IV. Oil and gas leases and/or interests subject to this Agreement:
All oil and gas leases and/or interests covering lands subject to this Agreement are described in Exhibit "A-1" attached hereto and made a pati hereof; provided, all burdens on production from the Contract Area shall be several, and each patiy shall pay or deliver, or cause to be paid or delivered, all burdens on production fl'om the Contract
1 Subject to separate operating agreement(s), the terms and conditions which are separate and distinct from those contained in this Agreement. This Agreement shall neither be construed as creating or vesting any rights or obligations in, nor establishing contractual privity with, any other Non-Operator hereto relating to such separate agreements.
Page 1 of3
Area due under the terms of the oil and gas leases which such party has contributed to this Agreement.
V. Addresses of Operator and Non-Operators:
Operator:
EP Energy E&P Company, L.P. Attn: Land Director- Altamont Asset 1001 Louisiana Street, Suite 2400 Houston, Texas 77002 Phone: (713 )-997 -1000
Non-Operators:
Bill Barrett Corporation Attn: Vice President, Land 1099 18th Street, Suite 2300 Denver, Colorado 80202 Phone: (303)-312-8544
Crescent Point Energy U.S. Corp. Attn: Manager, Land and Business Development 555 171
h Street, Suite 1800 Denver, Colorado 80202 Phone: (303)-382-6766
QEP Energy Company 1050 17th St., Suite 500 Denver, Colorado 80265 Phone: (303)-640-4287
JP FURLONG CO. P.O. Box 2357 Bismarck, North Dakota 58502
KKREP,LLC Attn: Kruise B. Kemp, President P.O. Box 80942 Billings, Montana 89108 Phone: ( 406)-200-7190
T. C. Craighead & Company P. 0. Box 576 Ardmore, Oklahoma 73402-0576 Phone: (580)-223-7470
Slover Minerals, L.P. 3614 Royal Road Amarillo, Texas 79109
Broughton Petroleum Inc. P. 0. Box 1389 Sealy, Texas 77474 Phone: (979)-877-0200
Linn Operating, Inc. 1999 Broadway Street, Suite 3700 Denver, Colorado 80202 Phone: (303)-999-4214
Page 2 of3
Croff Oil Company, Inc. 16 Waterway Comt The Woodlands, Texas 77380-2641 Phone: (303)-809-9195
Argo Energy Partners, Ltd. P.O. Box 1808 Corsicana, Texas 75151
Dusty Sanderson 7802 Bennington Amarillo, Texas 79119 Phone: (806)-681-0888
Page 3 of3
E>GHIBIT "A-1" Attached to and made a part of that certain Model Form Operating Agreement dated June 1, 2014, by and between EP
Energy E&P Company, L.P., as Operator, and Linn Operating, Inc., as Non-Operator, covering Section 2, Township 3 South, Range 5 West, Duchesne County, Utah ("Contract Area").
Leases Contributed to this Agreement by EP Energy E&P Company, L.P.:
LEASE NO LESSOR LESSEE RECORDING
El Paso Production Oil & Gas, USA Book: M306
0001032733/999 Harriett Sam LP.
Page: 154 Entry: 37 4658
El Paso Production Oil & Gas, USA Book: M307
0001 032734/999 Joseph Sam Page: 421 L.P.
Entry: 376492
El Paso Production Oil & Gas, USA Book: M307
0001032735/999 Flora Scott Page: 418 L.P.
Entry: 376491
R. W. Slemaker, Jr. Attorney in Fact for the El Paso Production Oil & Gas, USA Book: M309
00010364911999 Estate of R. W. Slemaker L.P.
Page: 743 Entry: 381287 Book: M339
0001060773/999 Lana Kemp Smith El Paso E&P Company, L.P. Page: 209 Entry: 419783 Book: M345
0001063492/999 Patricia M. Mothersead El Paso E&P Company, L.P. Page: 146 Entry: 423975 Book: M345
0001063523/999 Cha~otte M. McGee El Paso E&P Company, L.P. Page: 140 Entry: 423972 Book: M346
0001063732/999 Michael Robert Page El Paso E&P Company, L.P. Page: 618 Entry: 425048 Book: M347
00010637 43/999 James Orval Thomas El Paso E&P Company, L.P. Page: 250 Entry: 425479 Book: M347
00010637611999 Kenneth Cope Thomas El Paso E&P Company, L.P. Page: 113 Entry: 425374 Book: M347
0001063762/999 Alta Ann Johnsen El Paso E&P Company, L.P. Page: 572 Entry: 425849 Book: M347
0001063763/999 Jessup Otto Johnsen and Sally Johnsen El Paso E&P Company, L.P. Page: 561 Entry: 425844 Book: M346
0001 0637641999 Norma W. Close El Paso E&P Company, L.P. Page: 780 Entry: 425194 Book: M347
0001 063771/999 Burthell Mayhew and Sylvia Mayhew El Paso E&P Company, L.P. Page: 253 Entry: 425480
Althora Fairbanks, as Attorney-in-Fact for Elva Book: M347 0001 063772/999 Moulton Mayhew, a widow of Burdett Mayhew, El Paso E&P Company, L.P. Page: 556
also known as Burdette Mayhew Entry: 425842 Book: M345
00010638211999 Patricia A. Close El Paso E&P Company, L.P. Page: 392 Entry: 424181 Book: M346
0001063822/999 J. Smith Investments, LLC El Paso E&P Company, L.P. Page: 201 Entry: 424604
Melvin D. Close, Jr., as Trustee of the Melvin Book: M346
0001 063823/999 D. Close, Jr. Trust El Paso E&P Company, L.P. Page: 131 Entry: 424520 Book: M345
0001063870/999 VeTar Energy, a General Partnership El Paso E&P Company, L.P. Page: 156 Entry: 423979 Book: M346
0001063878/999 Leo L. Brady and LaReta Brady El Paso E&P Company, L.P. Page: 290 Entry: 424713
Jack D. Close, Sr. and Gay Lee Close, also Book: M347
0001 063907/999 El Paso E&P Company, L.P. Page: 810 known as Gaylee Close
Entry: 426076 Book: M350
0001063978/999 Michael Jessup Thomas El Paso E&P Company, L.P. Page: 691 Entry: 427602
Cheryl K. Learfield, Heir of Lloyd Gardner, Heir Book: M352
0001 064029/999 of Melvin A. A~vood and Vera Awood
El Paso E&P Company, L.P. Page: 56 Entry: 428106
Constance B. Gleave, as widow ofV. Prentiss Book: M352
0001064030/999 Gleave
El Paso E&P Company, L.P. Page: 90 Entry: 428116
Page 1 of 3
EXHIBIT "A-1" Attached to and made a part of that certain Model Form Operating Agreement dated June 1, 2014, by and between EP
Energy E&P Company, L.P., as Operator, and Linn Operating, Inc., as Non-Operator, covering Section 2, Township 3 South, Range 5 West, Duchesne County, Utah ("Contract Area").
Erma Merkley, as Trustee of the Erma Merkley Book: M349
0001084058/999 El Paso E&P Company, L.P. Page: 23 Property Trust, dated November 23, 2009 Entry: 426538 Book: M349
0001 0840591999 Karen T. Gleave Swindle El Paso E&P Company, L.P. Page: 14 Entry: 426535 Book: M349
0001 084080/999 Mace T. Gleave, Heir of V. Prentiss Gleave El Paso E&P Company, L.P. Page: 17 Entry: 426536 Book: M349
0001064081/999 Kamelle Gleave, Heir ofV. Prentiss Gleave El Paso E&P Company, L.P. Page: 20 Entry: 426537 Book: M349
0001064067/999 Jeff Gleave, Heir of V. Prentiss Gleave El Paso E&P Company, L.P. Page: 113 Entry: 426534 Book: M352
0001064072/999 Ina VanTassell El Paso E&P Company, L.P. Page: 75 Entry: 428110
Calvin Gardner, Heir of the Estate of Melvin A. Book: M349
0001064081/999 Atwood and Vera Atwood
El Paso E&P Company, L.P. Page: 479 Entry: 426784 Book: M349
0001084082/999 Randy Anderson, Heir of Donna V. Anderson Et Paso E&P Company, L.P. Page: 632 Entry: 426974 Book: M350
0001084083/999 Maury V. Gleave, Heir of V. Prentiss Gleave El Paso E&P Company, L.P. Page: 190 Entry: 427296
Kenneth Leland Wilkinson and Jeanne Thorn Book: M349
0001 064087/000 Wilkinson, Trustees for the Jeanne and
El Paso E&P Company, L.P. Page: 652 Kenneth L. Wilkinson Trust dated the 31st day
of July, 1993 Entry: 427021
Christy Vat Atwood, Heir of the Estate of Book: M350
0001064101/999· Melvin A. Atwood and Vera Atwood
El Paso E&P Company, L.P. Page: 249 Entry: 427360 Book:A601
00010641151999 William D. Lewis and Glenda J. Lewis El Paso E&P Company, L.P. Page: 732 Entry: 427204 Book: M352
0001084883/999 Paul L. McCulliss El Paso E&P Company, L.P. Page: 170 Entry: 428246 Book: M352
0001064884/999 Karen Babcock El Paso E&P Company, L.P. Page: 150 Entry: 428237 Book: M352
0001064887/999 Weston LaMar Thomas El Paso E&P Company, L.P. Page: 153 Entry: 428238
DanielL. Gardner, Heir of Lloyd Gardner, Heir Book: M352
0001064890/999 of Melvin A. Atwood and Vera Atwood El Paso E&P Company, L.P. Page: 173 Entry: 428247 Book: M353
00010849381999 Ann Hoffman, Heir of Donna V. Anderson El Paso E&P Company, L.P. Page: 108 Entry: 428905 Book: M353
0001064939/999 Edward Anderson, Heir of Donna V. Anderson Et Paso E&P Company, L.P. Page: 139 Entry: 428919 Book: M347
0001085133/999 Lance James Page El Paso E&P Company, L.P. Page: 260 Entry: 425483 Book: M349
0001085146/999 Eric Thomas Page Et Paso E&P Company, L.P. Page: 598 Entry: 426945 Book: M348
0001085162/999 Dorothy !vie El Paso E&P Company, L.P. Page: 693 Entry: 426379
David Reese Voda, as Trustee of the David Book: M345 0001065172/999 Reese Voda Family Living Trust dated January El Paso E&P Company, L.P. Page: 178
26,1999 Entry: 424014
Tenri Lewis McCurdy, Personal Representative Book:A601
0001085188/999 of the Estate of Valle Willis Lewis
El Paso E&P Company, L.P. Page: 737 Entry: 427206
Hollis Atwood, Heir of the Estate of Melvin A. Book: M349
0001065197/999 Atwood and Vera Atwood El Paso E&P Company, L.P. Page: 630 Entry: 426973 Book: M358
0001 065592/999 Linda Gines El Paso E&P Company, L.P. Page: 47 Entry: 431901
Page 2 of3
EXHIBIT "A-1" Attached to and made a part of that certain Model Form Operating Agreement dated June 1, 2014, by and between EP
Energy E&P Company, L.P., as Operator, and Linn Operating, Inc., as Non-Operator, covering Section 2, Township 3 South, Range 5 West, Duchesne County, Utah ("Contract Area").
Linda Hauskuecht, Larry S. Lewis, Sherry L. Book: M358
0001065615/999 Webb & Vicki Lewis, as Successor Trustees of Et Paso E&P Company, L.P. Page: 403 the Sheldon J. Lewis Living Trust, dated March
28,2005 Entry: 432139 Book: M358
0001065762/999 Covey Minerals, Inc. El Paso E&P Company, L.P. Page: 703 Entry: 432316 Book: M349
0001066094/999 Leila E. Pine El Paso E&P Company, L.P. Page: 491 Entry: 426789
Melvin Nord Atwood, Heir of the Estate of Book: A601
0001066095/999 El Paso E&P Company, L.P. Page: 739 Melvin A. Atwood and Vera Atwood Entry: 427207 Book: M346
0001 066110/999 George G. Vaught, Jr. El Paso E&P Company, L.P. Page: 615 Entry: 425047 Book: M368
0001070063/999 Gordon T. Griffiths El Paso E&P Company, l.P. Page: 131 Entry: 435495 Book: M369
0001 070397/999 Theresa Scoggins El Paso E&P Company, L.P. Page: 170 Entry: 436410 Book: M374
0001 072238/999 Gary E. Griffiths El Paso E&P Company, L.P. Page: 514 Entry: 441104 Book: M376
0001072479/999 Wayne S. Griffiths El Paso E&P Company, L.P. Page: 43 Entry: 442264 Book: M376
0001072510/000 Arthur Higgins Living Family Trust El Paso E&P Company, L.P. Page: 703 Entry: 442276 Book: M369
0001073809/999 Linda Gines EP Energy E&P Company, L.P. Page: 71 Entry: 452305
Maxine Rowley, Personal Representative of Book: M399
0001074752/999 EP Energy E&P Company, L.P. Page: 602 the Estate of Ilia H. Sanford, Deceased Entry: 458129 Book: M411
0001076399/999 Club Oil and Gas, Ltd., LLC EP Energy E&P Company, L.P. Page: 688 Entry: 467779 Book: M411
00010764011999 Raymond T. Duncan Oil Properties, Ltd. EP Energy E&P Company, L.P. Page: 692 Entry: 467781 Book: M411
00010764031999 Walter Duncan Oil, LLC EP Energy E&P Company, LP. Page: 684 Entry: 467777 Book: M414
0001076869/999 DanielS. Sam and Penny B. Sam EP Energy E&P Company, L.P. Page: 117 Entry: 469375
Burthel Mayhew, NK/A Burthell Mayhew NK/A Book: M416 Burthel B. Mayhew, an Heir of Burdett.
0001 076906/999 Mayhew, NK/A Burdette Mayhew, Deceased EP Energy E&P Company, L.P. Page: 316 and an Heir of Elva Moulton Mayhew, NK/A
Elva Mayhew NKJA Susan Elva Moulton Entry: 471160 Mayhew, Deceased
Book: M417 0001076934/999 Myrl M. Chugg, AKA Myrl Mane Chugg EP Energy E&P Company, L.P. Page: 610
Entry: 472309
Mark Stephen Fairbanks, AKA MarkS. Book: M417 Fairbanks and Michael Ned Fairbanks, AKA
Michael N. Fairbanks as Successor Co-
0001077564/999 Personal Representatives of the Estate of EP Energy E&P Company, L.P. Page: 247 Althora Fairbanks, and Heir of Burdett
Mayhew, AKA Burdette Mayhew, Deceased and an Heir of Elva Moulton Mayhew, AKA Entry: 471853
Elva Mayhew, Deceased
Lareta Brady, NK/A Lareta Fay Brady F!I<JA Lareta Mayhew, and Heir of Burdett Mayhew,
Book: M416
0001077087/999 NK/A Burdette Mayhew, Deceased and an EP Energy E&P Company, L.P. Page: 511 Heir of Elva Moulton Mayhew, NK/A Elva Mayhew NK/A Susan Elva Moulton Mayhew,
Deceased Entry: 471343
Page 3 of3
EXHIBIT "B" Attached to and made a part of that certain Model Form Operating Agreement ("Agreement"), dated June 1, 2014, by and between EP Energy E&P Company, L.P., as Operator, and T. C. Craighead & Company, eta!, as Non-Operators, covering
Section 2, Township 3 South, Range 5 West, Duchesne County, Utah ("Contract Area"). Producers 88 (Orig. 11/83)
(PAID-UP) OIL AND GAS LEASE
THIS LEASE AGREEMENT is made as of the _____ _ day of, 20 _ , Between
As Lessor (whether one or more), and as Lessee. All printed portions of this lease_\_ve_r_e_p-re-pa-r-ed-;-;-by-t"h-:-e-p-,-arty-;-ch;-e-re-:i-na'b-ov_e_n_a_m_e'd-as~L'e-s-se-e"""', b'u-;-t~al""l-ot7h-er_p_r-ov-:i-:si-on-s-;(""in-c'""lu""'d7in-g""'th'e-c-o-m-p"'"le..,ti,..on-of"'b'la-n7k-sp:ces) \Vere prepared jointly by Lessor and Lessee. 1. Description. In consideration of a cash bonus in hand paid and the covenants herein contained, Lessor hereby grants, leases and lets exclusively to Lessee the following described land, hereinafter called leased premises: (use Exhibit 11A" for long deScription):
in the county of Duchesne • State of Utah , containing Gross acres, more or less (including any interests therein which Lessor may hereafter acquire by revision. prescription or otherwise), for the purpose of exploring for, developing, producing and marketing oil and gas, along with all hydrocarbon and nonhydrocarbon substances produced in association therewith, and all other minerals or substances, whether similar or dissimilar. The term 11gas" as used herein includes helium, carbon dioxide and other commercial gases, as well as hydrocarbon gases. In addition to the abovedescribed leased premises, this lease also covers accretions and any small strips or parcels of land now or hereafter o\vned by Lessor which are contiguous or adjacent to the above·described leased premises, and in consideration of the aforementioned cash bonus, Lessor agrees to execute at Lessee's request any additional or supplemental instruments for a more complete or accurate description of the land so covered. For the purpose of determining the amount of any royalties and shut-in royalties hereunder, the number of gross acres above specified shaH be deemed correct, \vhether actually more or less. 2. Term of Lease. This lease shall be in force for a primary tenn of 1 year from this date, and for as long thereafter as oil or gas or other substances covered hereby are produced in paying quantities from the leased premises or from lands pooled therewith or this lease is otherwise maintained in effect pursuant to the provisions hereof. 3. Payments. This is a PAID-UP LEASE. In the event that payments are necessitated by other provisions of this lease, Lessee shall pay or tender such payments to Lessor or to Lessor's credit in Pay directly to Lessor at the above address
at , or its successors, which shall be Lessor's depository agent --;:fo:-r-r-e-ce-:iv""'i-ng-pa_y_m_e_n'""ts-r-eg-a-rd"le_s_s-o"f-c;-hange in the ownership of said land. All payments or tenders may be made in currency. or by check or by draft, and such
payments or tenders to Lessor or to the depository by deposit in the U.S. Mails on or before the due date in a stamped envelope addressed to the depository or to the Lessor at the last address know to Lessee shall constitute proper payment. If the depository should liquidate or be succeeded by another institution or for any reason fail or refuse to accept payment hereunder. Lessee shall not be held in default for failure to make such payment until 60 days after Lessor has delivered to Lessee a proper recordable instrument naming another institution as depository agent to receive payment. If on or before any due date lessee in good-faith makes an erroneous payment by paying the wrong person, the wrong depository, or the wrong amount, Lessee shall be unconditionally obligated to make proper payment for the period involved and this lease shall continue in affect as though such payment had been properly made, provided that proper payment shall be made within 30 days after receipt by a Lessee of written notice of the error from Lessor. accompanied by any documents and other evidence necessary to enable Lessee to make proper payment. Lessee may pay or tender any payment at any time in advance of its due date to the Lessor then kno\vn to Lessee as provided in Paragraph 8 and such payment or tender shall bind all persons then or thereafter claiming any part of such payment. 4. Royalty payment. Royalties on oil, gas and other substances produced and saved hereunder shall be paid by the Lessee to Lessor as follO\w: (a) for oil and other liquid hydrocarbons separated at Lessee's separator facilities, the royalty shall be one-sixth of such production. to be delivered at Lessee's option to Lessor at the wellhead or to Lessor's credit at the oil purchaser's transportation facilities, provided that Lessee shall have the continuing right to purchase such production at the wellhead market price then prevailing in the same field (or if there is no such priced then prevailing in the same field. then in the nearest field in which there is such a prevailing price) for production of similar grade and gravity7 (b) for gas (including casinghead gas) and all other substances covered hereby. royalty shaH be one-sixth of the proceeds realized by Lessee from the sale thereof, less a proportionate part of ad valorem taxes and production. severance, or other excise taxes and the costs incurred by Lessee in delivery. processing, or otherwise making such gas or other substances merchantable. provided that Lessee shall have the continuing right to purchase such production at the prevailing wellhead market price paid for production of similar quality in the same field (or if there is no such price then prevailing in the same field, then in the nearest field in which there is such of prevailing price), pursuant to comparable purchase contracts entered into on the same or nearest preceding date as the date on which Lessee commences its purchases hereunder, and (c) if a well on the leased premises or lands pooled therewith is capable of producing oil or any other substances covered hereby but such well is either shut-in or production therefrom is not being sold or purchased by Lessee or royalties on production therefrom are not otherwise being paid to the Lessor and if this lease is not otherwise maintain in effect, such well shall nevertheless be considered as though it were producing in paying quantities for the purpose of maintaining this lease whether during or after the primary tenn, and Lessee shall pay a shut-in royalty ofT\VO DOLLARS per acre then covered by this lease, such payment to be made to the Lessor or to Lessor's credit in the depository designated above, on or before 90 days after the next ensuing anniversary date of this lease. and thereafter on or before each anniversary date hereof while the well is shut-in or production therefrom is not being sold or purchased by Lessee or royalties on production therefrom are not otherwise being paid to Lessor. This lease shall remain in force so long as such well is capable of producing in paying quantities, and Lessee's failure to properly pay shut-in royalty shall render Lessee liable for the amount due but not operate to terminate this lease unless Lessee shall have failed for a period of thirty (30) days after discovery of failure to pay such shut-in payment to tender such payment in the proper amount~ together with a late or improper payment penalty of$100.00. 5. Operations. If Lessee drills a well which is incapable of producing in paying quantities (hereinafter called '*dry hole") on the leased premises or lands pooled therewith, or if all production (whether or not paying quantities) ceases from any cause. including a revision of unit boundaries pursuant to the provisions of Paragraph 6 or the action of any governmental authority, then in the event this lease is not within its primary term for it is not otherwise being maintained in force it shall nevertheless remain in force if Lessee commences operations for reworking an existing well or for drilling an additional well on the leased premises or lands pooled therewith within 90 days after the completion of operations on such dry hole or within 90 days after such secession of all production. If at the end of the primary term, oil. gas or other substances covered here by are not being produced in paying quantities from the leased premises or lands pooled therewith. but Lessee is then engaged in drilling, reworking or any other operations reasonably calculated to obtain or restore production therefrom, this lease shall remain in force so long as sqch operations are prosecuted with no secession of more than 90 consecutive days. and if any such operations result in the production of oil or gas or other substances covered hereby, as long thereafter as there is production in paying quantities from the leased premises or lands pool therewith. After completion of a well capable of producing in paying qualities hereunder, Lessee shall drill such additional wells on the leased premises or lands pooled therewith as a reasonably prudent operator would drill under the same similar circumstances to (a) develop the leased premises as to fonnations then capable of producing paying quantities on the leased premises or lands pooled therewith, or (b) protect the lease premises from uncompensated drainage by any well or wells located on other lands not pooled therewith. There shall be no covenant to drill exploratory wells or any additional wells except as expressly provided herein. 6. Pooling. Lessee, at its option, is hereby given the right and power at any time and from time to time as a recurring right. either before or after production. as to all or any part of the land of describes here in and as to any one or more of the formations here under, to pool or unitizes the leasehold estate and the mineral estate covered by this lease with other land, lease or leases in the immediate vicinity for the production of oil and gas. or separately for the production of either. when in Lessees judgment is necessary or advfsable to do so, and irrespective of whether authority similar to this exists \vith respect to such other land, lease or leases. likewise, units previously formed to include formations not producing oil or gas, maybe reformed to exclude such non·producing formations. The forming or reforming of the units shall be accomplished by Lessee executing in the filing of record a declaration of such'unitization or reformation, which declaration shall describe the unit. Any unit may include land upon which a well has theretofore been completed or upon which operations for drilling have theretofore been conunenced. Production. drilling or reworking operations or a well shut-in for want of a market anywhere on the unit which includes all or a part of this lease shall be treated as if it were production. drilling or reworking operations or a well shut-in for want of a market under this lease. In lieu of the royalties elsewhere here in specified. including shut-in gas royalties. Lessor shall receive on production from a unit so pooled royalties only on the portion of such a production allocated to this lease; such allocation shall the that proportion of the unit production that the total number of surface acres covered by this lease and included in the unit bears to the total number of surface acres in such unit. In addition to the forgoing. Lessee shall have the right to unitize, pool, or combine all or any part of the above described lands as to one or more of the formations thereunder with other land in the same general area by entering into a cooperative or unit plan of development or operation approved by any government. Indian or Tribal authority and, from time to time, with like approval. to modify, change or terminate any such plan or agreement and, in such event, the terms, conditions, and provisions of this lease shall be deemed modified to conform to the terms, conditions, and provisions of such approved cooperative or unit plan of development or operation and, particularly. all drilling and development requirements of this lease, express or implied, shall be satisfied by compliance with the drilling and development requirements of such plan or agreement, and this lease shall not terminate or expire during the life of such plan or agreement. In the event that said above described lands or any part thereof, shall hereafter be operated under any such cooperative or unit plan of development or operation whereby the production therefrom is allocated to different portions of the land covered by said plan, then the production allocated to any particular tract of land shall, for the purpose of computing the royalties to be paid hereunder to Lessor. be regarded as having been produced from the particular tract of land to which it is allocated and not to any other tract of land; and the royalty payment to be hereunder to Lessor shall be based upon production only as so allocated. Lessor shall formally express Lessor's consent to any
EXHIBIT "B" Attached to and made a part of that certain Model Form Operating Agreement ("Agreement"), dated June I, 2014, by and between EP Energy E&P Company, L.P., as Operator, and T. C. Craighead & Company, eta!, as Non-Operators, covering
Section 2, Township 3 South, Range 5 West, Duchesne County, Utah ("Contract Area"). cooperative or unit plan of development or operation adopted by Lessee and approved by any governmental agency by executing the same upon request of Lessee. 7. Lesser Interest. If Lessor mvns less than the full mineral estate in all or any part of the Leased premises, payment of royalties and shut·in royalties for any well on any part of the leased premises or lands pooled therewith shall be reduced to the proportion that Lessor's mineral interest is such part of the leased premises bears to the full mineral estate in such part of the leased premises. 8. Ownership Changes. The interest of either Lessor or Lessee hereunder may be assigned, devised or otherwise transferred in whole or in part, by area and! or by depth or zone, and the rights and obligations of the parties hereunder shaH extend to their respective heirs, devisees, executors, administrators, successors and assigns. No change in Lessor's ownership shall have the effect of reducing the rights or enlarging the obligations of Lessee hereunder, and no change in ownership shall be binding on Lessee until 60 days after Lessee has been furnished the original or certified or duly authenticated copies, by registered US mail at Lessee's principal place of business, of the documents establishing sue~ change of ownership to the satisfaction of Lessee or until Lessor has satisfied the notification requirements contained in Lessee's usual form of division order. In the event of the death of any person entitled to shut-in royalties hereunder, Lessee may pay or tender such shut-in royalties to the credit of descendent or descendant's estate in the depository designated above. If at any time two or more persons are entitled to shut-in royalties hereunder, Lessee may pay or tender such shut-in royalties to such persons or to their credit in the depository, either jointly or separately in proportion to the interest which each owns. If Lessee transfers its interest hereunder in whole or in part, Lessee shall be relieved of all obligations thereafter arising with respect to the transferred interest, and failure of the transferee to satisfy such obligation with respect to the transferred interest shall not affect the rights of Lessee with respect to any interest not so transferred. If Lessee transfers a full or undivided interest in all or any portion of the area covered by this lease, the obligation to pay or tender shut-in royalties hereunder shall be divided between Lessee and the transferee in proportion to the net average interest in this lease then held by each. 9. Release of Lease. Lessee may, at any time and from time to time, deliver to Lessor or file of record a written release of this lease as to a full or undivided interest in all or any portion of the area covered by this lease or any depths or zones thereunder, and shall thereupon be relieved of all obligations there after arising with respect to the interest so released. If Lessee releases all or an undivided interest in less than all of the area covered hereby, Lessee's obligation to pay or tender rentals and shut-in royalties shall be proportionately reduced in accordance with the net acreage interest retained hereunder. 10. Ancillary Rights. In exploring for, developing, producing and marketing oil, gas or other substances covered hereby on the leased premises of lands pooled or unitized there\vith, in primary and/or enhanced recovery, Lessee shall have the right of ingress and egress along \vith the right to conduct such operations on the leased premises as may be reasonably necessary for such purposes, including but not limited to the exclusive right to conduct geophysical operations, the drilling of wells, and the construction and use of roads, canals, pipelines, tanks, water wells, disposal wells, injection wells, pits, electric and telephone lines. power stations, and other facilities deemed necessary by Lessee to discover, produce, store, treat and/or transport production. Lessee may use in such operations, free of cost, any oil, gas, water and/or other substances produced on leased premises, except water from lessor's wells or ponds. The right of ingress and egress granted hereby shall apply to the entire leased premises described in Paragraph I above, not\vithstanding any partial release or other termination of this lease with respect thereto. When requested by Lessor in writing, lessee shall bury its pipelines below plow depth. No well shall be located less than 200 feet from any house or bam now on the leased premises without lessor's consent, and Lessee shall pay for damage caused by its operations to buildings and other improvements now on the leased premises, and to timber and growing crops thereon. Lessee shall have the right at any time to remove its fixtures, equipment and materials, including well casing, from the leased premises during the tenn of this lease or within a reasonable time thereafter. 11. Regulation and Delay. Lessee's obligations under this lease, whether express or implied, shall be subject to all applicable la\VS, rules, regulations and orders of any governmental authority having jurisdiction including the restrictions on drilling and production of Wells, and the price of oil, gas and other substances covered hereby. \Vhen drilling, reworking, production or other operations are prevented or delayed by such laws, rules, regulations or orders, or by inability to obtain necessary permits, equipment, services, material, water, electricity, fuel, access or easements. or by fire, flood. adverse weather conditions, war, sabotage, rebellion, insurrection, riot, strike or labor disputes, or by inability to obtain a satisfactory market for production or failure by purchasers or carriers to take or transport such production, or by any other cause not reasonably within lessee's control, this lease shall not terminate because of such prevention or delay, and at Lessee's option, the period of such prevention or delay shall be added to. the term hereof. Lessee shall not be liable for breach of any express or implied covenants of this lease when drilling, production or other operations are so prevented, delayed or interrupted. 12. Breach or Default. No litigation should be initiated by lessor with respect to a breach or default by Lessee hereunder, for a period of at least ninety (90) days after Lessor has given Lessee written notice, by registered or certified U.S. mail addressed to the principle place of Business of Lessee, fully describing the breach or default, and then only if Lessee fails to remedy or commence to remedy all or any part of breach or default \vithin such period. Neither the service of said notice nor the doing of any acts by Lessee aimed to meet all or any part of the alleged breach or default shall be deemed an admission or presumption that Lessee has failed to perform all its obligations hereunder. In the event the matter is litigated and there is a final judicial determination that a breach or default has occurred, the lease shall not be forfeited or cancelled in whole or in part, unless Lessee is given a reasonable time after said judicial determination to remedy the breach or default and Lessee fails to do so. If this lease is cancelled for any cause, it shall nevertheless remain in force and effect as to (1) sufficient acreage around each well as to which there are operations to constitute a drilling or maximum allowable unit under applicable governmental regulations (but in no event less than forty (40) acres). such acreage to be designated by Lessee as nearly as practicable in the form of a square centered as the well or in such a shape as then existing spacing rules require; and (2) any part of said land including in a pooled unit on \vhich there are operations. Lessee shall also have such easements on said land as are necessary for operation on the acreage so retained. This Paragraph 12 shall not apply to erroneous payment of rental. 13. \Varranty of Title. Lessor hereby warrants and agrees to defend title conveyed to Lessee hereunder, and agrees that Lessee at Lessee's option may pay and discharge any taxes, mortgages or liens existing, levied or assessed on or against the leased premises. If Lessee exercises such option, Lessee shall be subrogated to the rights of the party to whom payment is made, and in addition to its other rights, may reimburse itself out of any rentals. royalties or shut-in royalties otherwise payable to Lessor hereunder. In the event Lessee is made aware of any claim inconsistent with Lessor's title, Lessee may suspend the payment of rentals, royalties and shut-in royalties hereunder, without interest. until Lessee has been furnished satisfactory evidence that such claim has been resolved. 14. Homestead Exemption. Lessor hereby expressly releases dower or curtsy rights and releases and waives all right under or by virtue of the Homestead Exemption Laws as far as they may in any way affect the purposes for which this lease is made.
IN WITNESS WHEREOF, this lease is executed to be effective as of the date first written above, but upon execution shall be binding on the signatory and the signatory's heirs, devisees, executors, administrators, successors and assigns, whether or not this lease has been executed by all parties hereinabove named as Lessor.
STATE OF
COUNTY OF } SS. ACKNOWLEDGMENT (For use in all states)
Tax payer Identification or Social Security No.
BEFORE ME, the undersigned, a Notary Public, in and for said Cmmty and State on this ___ Day of , 20~ personally appeared to me known to be the identical person(s) described in and who executed the within and foregoing instnnnent ofwriting and acknowledged to me that He duly executed the same as his free and voluntary act and deed for the purposes therein set forth.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my notarial seal the day and year last above written.
My commission expires: ______ _ Notary Public Address
EXHIBIT "B" Attached to and made a part of that certain Model Form Operating Agreement ("Agreement"), dated June 1, 2014, by and between EP Energy E&P Company, L.P., as Operator, and T. C. Craighead & Company, eta!, as Non-Operators, covering
Section 2, Township 3 South, Range 5 West, Duchesne County, Utah ("Contract Area"). STATEOF }
} ss. COUNTYOF }
Before me, the undersigned, a Notary Public, in and for said County and State on the __ day of 20_, personally appeared to me known to be the identical person(s) described in and who executed the within and foregoing instrument of writing and acknowledged to me that ___ duly executed the same as free and voluntary act and deed for the purposes therein set forth.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my notarial seal the day and year last above written.
My commission expires:. _______ _
Address:
Exhibit " C " ACCOUNTING PROCEDURE
JOINT OPERATIONS
COPAS 2005 Accounting Procedure Recommended by COPAS
Attached to and made part of that certain Model Form Operatinu Aoreement dated effective June 1 2014 by and between EP
Energy E&P Company L.P. as Operator and T. C. Craiohead & Company et al as Non-Ooerators coverinu Section 2 Township 3
South Range 5 \Vest Duchesne Countv Utah ("Contract Area").
I. GENERAL PROVISIONS
IF THE PARTIES FAIL TO SELECT EITHER ONE OF COMPETING "ALTERNATIVE" PROVISIONS, OR SELECT ALL THE
COMPETING "ALTERNATIVE" PROVISIONS, ALTERNATIVE 1 IN EACH SUCH INSTANCE SRALL BE DEEMED TO HAVE
10 BEEN ADOPTED BY THE PARTIES AS A RESULT OF ANY SUCH OMISSION OR DUPLICATE NOTATION.
11
12 IN THE EVENT THAT ANY "OPTIONAL" PROVISION OF THIS ACCOUNTING PROCEDURE IS NOT ADOPTED BY THE
13 PARTIES TO THE AGREEMENT BY A TYPED, PRINTED OR HANDWRITTEN INDICATION, SUCH PROVISION SHALL NOT
14 FORM A PART OF THIS ACCOUNTING PROCEDURE, AND NO INFERENCE SHALL BE MADE CONCERNING THE INTENT
15 OF THE PARTIES IN SUCH EVENT.
16
17 1. DEFINITIONS
18
19 All terms used in this Accounting Procedure shalt have the following meaning, unless otherwise expressly defined in the Agreement:
20
21 "Affiliate" means for a person, another person that contro~s. is controlled by, or is under common control with that person. In this
22 definition, (a) control means the ownership by one person, directly or indirectly, of more than fifty percent (50%) of the voting securities
23 of a corporation or, for other persons, the equivalent ownership interest (such as partnership interests), and (b) "person" means an
24 individual, corporation, partnership, trust, estate, unincorporated organization, association, or other legal entity.
25
26 uAgreement" means the operating agreement, farmout agreement, or other contract between the Parties to which this Accounting
27 Procedure is attached.
28
29 "Controllable l\faterial" means Material that, at the time of acquisition or disposition by the Joint Account, as applicable, is so classified
30 in the Material Classification Manual most recently recommended by the Council of Petroleum Accountants Societies (COPAS).
31
32 "Equalized Freighf' means the procedure of charging transportation cost to the Joint Account based upon the distance from the nearest
33 Railway Receiving Point to the property.
34
35 "Excluded Amount" means a specified excluded trucking amount most recently recommended by COPAS.
36
37 "Field Office" means a structure, or portion of a structure, whether a temporary or permanent insta11ation, the primary function of which is
38 to directly serve daily operation and maintenance activities of the Joint Property and which serves as a staging area for directly chargeable
39 field personnel.
40
41 "First Level Supervision" means those employees whose primary function in Joint Operations is the direct oversight of the Operator's
42 field employees and/or contract labor directly employed On-site in a field operating capacity. First Level Supervision functions may
43 include, but are not limited to:
44
45 Responsibility for field employees and contract labor engaged in activities that can include field operations, maintenance,
46 construction, well remedial work, equipment movement and drilling
47 Responsibility for day-to-day direct oversight of rig operations
48 Responsibility for day-to~day direct oversight of construction operations
49 Coordination of job priorities and approval of work procedures
50 Responsibility for optimal resource utilization (equipment, Materials, personnel)
51 Responsibility for meeting production and field operating expense targets
52 Representation of the Parties in local matters involving community, vendors, regulatory agents and landowners, as an incidental
53 part of the supervisor's operating responsibilities
54 Responsibility for all emergency responses with field staff
55 Responsibility for implementing safety and environmental practices
56 Responsibility for field adherence to company policy
57 Responsibility for employment decisions and performance appraisals for field personnel
58 Oversight of sub~groups for field functions such as electrica1, safety, environmental, telecommunications, which may have group
59 or team leaders.
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61 "Joint Account" means the account showing the charges paid and credits received in the conduct of the Joint Operations that are to be
62 shared by the Parties, but does not include proceeds attributable to hydroearbons and by-products produced under the Agreement.
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64 "Joint Operations" means all operations necessary or proper for the exploration, appraisal, development, production, protection,
65 maintenance, repair, abandonment, and restoration of the Joint Property.
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"Joint Property" means the real and personal property subject to the Agreement.
COPAS 2005 Accounting Procedure Recommended by COPAS, Inc.
"Laws" means any lavvs, rules, regulations, decrees, and orders of the United States of America or any state thereof and all other
governmental bodies, agencies, and other authorities having jurisdiction over or affecting the provisions contained in or the transactions
contemplated by the Agreement or the Parties and their operations, whether such lav;s now exist or are hereafter amended, enacted,
promulgated or issued.
".Material" means personal property, equipment, supplies, or consurnables acquired or held for use by the Joint Property.
10 "Non-Operators" means the Parties to the Agreement other than the Operator.
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12 "Offshore Facilities" means platforms, surface and subsea development and production systems, and other support systems such as oil and
13 gas handling facilities, living quarters, offices, shops, cranes, electrical supply equipment and systems, fuel and water storage and piping,
14 heliport, marine docking installations, communication facilities, navigation aids, and other similar facilities necessary in the conduct of
15 offshore operations, aH of which are located offshore.
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17 "Off-site" means any location that is not considered On-site as defined in this Accounting Procedure:
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19 "On-site" means on the Joint Property when in direct conduct of Joint Operations. The term "On-site" shaH also include that portion of
20 Offshore Facilities, Shore Base Facilities, fabrication yards, and staging areas from which Joint Operations are conducted, or other
21 facilities that directly control equipment on the Joint Property, regardless of whether such facilities are owned by the Joint Account.
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23 "Operator" means the Party designated pursuant to the Agreement to conduct the Joint Operations.
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25 "Parties" means legal entities signatory to the Agreement or their successors and assigns. Parties shall be referred to individually as
26 "Party."
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28 "Participating Interest" means the percentage of the costs and risks of conducting an operation under the Agreement that a Party agrees,
29 or is otherwise obligated, to pay and bear.
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31 "Participating Party" means a Party that approves a proposed operation or otherwise agrees, or becomes liable, to pay and bear a share of
32 the costs and risks of conducting an operation under the Agreement.
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34 "Personal Expenses" means reimbursed costs for travel and temporary living expenses.
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36 "Railway Receiving Point" means the railhead nearest the Joint Property for which freight rates are published, even though an actual
37 railhead may not exist.
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39 "Shore Base Facilities" means onshore support facilities that during Joint Operations provide such services to the Joint Property as a
40 receiving and transshipment point for Materials~ debarkation point for drilling and production personnel and services~ communication,
41 scheduling and dispatching center; and other associated functions serving the Joint Pr~perty.
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"Supply Store" means a recognized source or common stock point for a given Material item.
"Te.chnical Servi.ces" means ~e~ictyaRff;.~~igNn~q~~:~~n~~~ineering, gt:osci~nce, or ot~er profe_s~ional skills, such as those performed ~y engmeers, geolog1sts, geophysiCISts, l'and tec~mcmns, reqmred to handle spec1fic operatmg cond1hons and problems for the benefit of Jomt
Operations; provided, however, Technical Services shall not include those functions specifically identified as overhead under the second
paragraph of the introduction of Section III (Overhead). Technical Services may be provided by the Operator, Operator~s Aftiliate, Non-
Operator, Non-Operator Affiliates, and/or third parties.
51 2. STATEMENTS AND BILLINGS
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53 The Operator shall bill Non-Operators on or before the last day of the month for their proportionate share of the Joint Account for the
54 preceding month. Such bills shall be accompanied by statements that identity the AFE (authority for expenditure), lease or facility, and all
55 charges and credits summarized by appropriate categories of investment and expense. Controllable Material shall be separately identified
56 and fully described in detail, or at the Operator's option, Controllable Material may be summarized by major Material classifications.
57 Intangible drilling costs, audit adjustments, and unusual charges and credits shall be separately and clearly identified.
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59 The Operator may make available to Non-Operators any statements and bills required under Section 1.2 and/or Section !.3.A (Admnces
60 and Payments by the Parties) via email, electronic data interchange, internet websites or other equivalent electronic media in lieu of paper
61 copies. The Operator shall provide the Non-Operators instructions and any necessary information to access and receive the statements and
62 bills within the timeframes specified herein. A statement or billing shall be deemed as delivered twenty-four (24) hours (exclusive of
63 weekends and holidays) after the Operator notifies the Non-Operator that the statement or billing is available on the website and/or sent via
64 email or electronic data interchange transmission. Each Non-Operator individually shall elect to receive statements and billings
65 electronically, if available from the Operator, or request paper copies. Such election may be changed upon thirty (30) days prior written
66 notice to the Operator.
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3. ADVANCES AND PAYMENTS BY THE PARTIES
A. Unless otherwise provided for in the Agreement, the Operator may require the Non-Operators to advance their share of the estimated
cash outlay for the succeeding month's operations within fifteen (15) days after receipt of the advance request or by the first day of
the month for which the advance is required, whichever is later. The Operator shall adjust each monthly billing to reflect advances
received from the Non-Operators for such month. If a refund is due, the Operator shall apply the amount to be refunded to the
subsequent month's billing or advance, unless the Non-Operator sends the Operator a written request for a cash refund. The Operator
shall remit the refund to the Non-Operator within fifteen (15) days of receipt of such written request.
10 B. Except as provided below, each Party shall pay its proportionate share of all bills in full within fifteen (15) I J~~~oPr~eipt date. If II
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payment is not mad~ wiltl~n such Rfoe. the ~npaW balancA shall bear interest compounded monthly at the prime rate fl1.:181islte9: b) the
WaN Street J9wYra!l~~'thegh~~~y 06f~~~ ~~nt~~~e ~it.yinent is delinquent, plus ~~ercent (d%) ). per annum, or the maximum
contract rate permitted by the applicable usury Laws governing the Joint Property, whichever is the lesser, plus attorney's fees, court
costs, and other costs in connection with the collection of unpaid amounts. If tfle We" Street Jmowal eeases te be f3Hblishe8 er
BiseeatiA:aes flHbliskiAo a rfime rate, the 1.:1AJ3ai8l:talaAee sHall Sear iAterest eemf!SHABeB meAtlll) at the rrime rate fl1.:18lished By the
Federal Reserve plas three pereeAt (]%}. fle£ aAAHm. Interest shall Begin aeerniA0 en the first Sa) efthe mentA in ·.,hieh the t'Ja)'ffieAt
was-due-:-Payment shall not be reduced or delayed as a result of inquiries or anticipated credits unless the Operator has agreed.
Notwithstanding the foregoing, the Non-Operator may reduce payment, provided it furnishes documentation and explanation to the
Operator at the time payment is made, to the extent such reduction is caused by:
(I) being billed at an incorrect working interest or Participating Interest that is higher than such Non-Operator's actual working
interest or Participating Interest, as applicable; or
(2) being billed for a project or AFE requiring approval of the Parties under the Agreement that the Non-Operator has not approved
or is not otherwise obligated to pay under the Agreement; or
(3) being billed for a property in which the Non-Operator no longer owns a working interest, provided the Non-Operator has
furnished the Operator a copy of the recorded assignment or letter in-lieu. Notwithstanding the foregoing, the Non-Operator
shall remain responsible for paying bills attributable to the interest it sold or transferred for any bills rendered during the thirty
(30) day period following the Operator's receipt of such written notice; or
(4) charges outside the adjustment period, as provided in Section 1.4 (Adjustments).
31 4. ADJUSTMENTS
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33 A. Payment of any such bills shall not prejudice the right of any Party to protest or question the correctness thereof; however, all bills 34
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and statements, including payout statements, rendered during any calendar year shall conclusively be presumed to be true and correct,
with respect only to expenditures, after twenty-four (24) months following the end of any such calendar year, unless within said
period a Party takes specific detailed written exception thereto making a claim for adjustment. The Operator shall provide a response
to all written exceptions, whether or not contained in an audit report, within the time periods prescribed in Section 15 (Etpenditure
Audits).
40 B. All adjustments initiated by the Operator, except those described in items (I) through (4) of this Section 1.4.B, are limited to the
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twenty-four (24) month period following the end of the calendar year in which the original charge appeared or should have appeared
on the Operator's Joint Account statement or payout statement. Adjustments that may be made beyond the twenty-four (24) month
period are limited to adjustments resulting from the following:
(I) a physical inventory of Controllable Material as provided for in Section V (Inventories ofControl/ableMateriaf), or
(2) an offsetting entry (whether in whole or in part) that is the direct result of a specific joint interest audit exception granted by the
Operator relating to another property, or
(3) a government/regulatory audit, or
(4) a working interest ownership or Participating Interest adjustment.
51 5. EXPENDITUREAUDITS
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53 A A Non-Operator, upon written notice to the Operator and all other Non-Operators, shall have the right to audit the Operator's
54 accounts and records relating to the Joint Account within the twenty-four (24) month period following the end of such calendar year in
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which such bill was rendered; however, conducting an audit shall not extend the time for the taking of written exception to and the
adjustment of accounts as provided for in Section I.4 (Acljustments). Any Party that is subject to payout accounting under the
Agreement shall have the right to audit the accounts and records of the Party responsible for preparing the payout statements, or of
the Party furnishing information to the Party responsible for preparing payout statements. Audits of payout accounts may include the
volumes of hydrocarbons produced and saved and proceeds received for such hydrocarbons as they pertain to payout accounting
required under the Agreement. Unless otherwise provided in the Agreement, audits of a payout account shall be conducted within the
"~ifl~t~~~~~~iJs~~m\geri~Je f~~~~~~1g lg1~~guoJifng ca!~dfJ ~e~!~t~~ii~hf~~~~t~f~J st~~1~~fC~ 'tWi r~~ft1~~dp~:he extent ffi>wever, the e'lient recy,rls re not.avatfable ytectromcaPvflihe au~atng.fJafiY WI~ revt~l" ~he,recora~.at il:e f.lace where \vh~~~0{~irgr:r/~~~~i~~r~ ~g~~~~1~g~l, fff~e~b~~Op~{a1g~~ ih~it 1~~k~ae~e~aie~~oen~~Fe~1t~~~~a ctg~auct a joint audit in a
manner that will result in a minimum of inconvenience to the Operator. The Operator shall bear no portion of the Non-Operators'
audit cost incurred under this paragraph unless agreed to by the Operator. The audits shall not be conducted more than once each year
without prior approval of the Operator, except upon the resignation or removal of the Operator, and shall be made at the expense of
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those Non-Operators approving such audit.
The Non-Operator leading the audit (hereinafter "lead audit company") shall issue the audit report within ninety (90) days after
completion of the audit testing and analysis~ however, the ninety (90) day time period shall not extend the t\venty-four (24) month
requirement for taking specific detailed written exception as required in Section I.4.A (Adjustments) above. All claims shall be
supported with sufficient documentation.
A timely filed written exception or audit report containing written exceptions (hereinafter "written exceptions") shall, with respect to
the claims made therein, preclude the Operator from asserting a statute of limitations defense against such claims. and the Operator
hereby waives its right to assert any statute of limitations defense against such claims for so long as any Non-Operator continues to
comply with the deadlines for resolving exceptions provided in this Accounting Procedure. If the Non-Operators fail to comply with
the additional deadlines in Section I.S.B or I.S.C, the Operator's waiver of its rights to assert a statute of limitations defense against
the claims brought by the Non-Operators shall lapse, and such claims shall then be subject to the applicable statute of limitations.
provided that such waiver shall not lapse in the event that the Operator has failed to comply with the deadlines in Section I.S.B or
!.S.C.
B. The Operator shall provide a written response to all exceptions in an audit report within e~~rt:~¥re<IJ~?~~~~~~Oj days after Operator
receives such report. ?enie~ ~xce~tions should be~~~~~ ~~i~~db§i~~u(~~8~tive response .. If the ~perator fails to provi~e substant~ve response to an exceptton wtthtn th1s 0 day penod, the Operator w1ll owe mterest on that exception or port10n
thereof, if ultimately granted. from the date it received the audit report. Interest shall be calculated using the rate set forth in Section
1.3.B (Advances and Pa;ments by the Parties).
C. The lead audit company shall reply to the Operator's response to an audit report within~ days of receipt, and the Operator
shall reply to the lead audit company's follow-up response within ~fi[ J~7J of receipt; provided, however, each Non-Operator
shall have the right to represent itself if it disagrees with the lead audit company's position or believes the lead audit company is not
adequately fulfilling its duties. Unl~.s ot?,erwise provided for in Section l5.E, if the Operator fails to provide substantive response
to an exception within this~ ~~~)period, the Operator will owe interest on that exception or portion thereof, if ultimately
granted. from the date it received the audit report. Interest shall be calculated using the rate set forth in Section I.3.B (Admnces and
Payments by the Parties).
. . . . . . . . tw~ni;[~('i~J4\ D. If any Party fa1ls to meet the deadlmes m Sections I.S.B or I.S.C or 1f any audit Issues are outstandmg f months after
Operator receives the audit report, the Operator or any Non·Operator participating in the audit has the right to call a resolution
meeting, as set forth in this Section I.S.D or it may invoke the dispute resolution procedures included in the Agreement, if applicable.
The meeting will require one month's written notice to the Operator and all Non-Operators participating in the audit. The meeting
shall be held at the Operator's office or mutually agreed location, and shall be attended by representatives of the Parties with
authority to resolve such outstanding issues. Any Party who fails to attend the resolution meeting shall be bound by any resolution
reached at the meeting. The lead audit company will make good faith efforts to coordinate the response and positions of the
Non-Operator participants throughout the resolution process; however, each Non-Operator shall have the right to represent itself.
Attendees \viii make good faith efforts to resolve outstanding issues, and each Party will be required to present substantive information
supporting its position. A resolution meeting may be held as often as agreed to by the Parties. Issues unresolved at one meeting may
be discussed at subsequent meetings until each such issue is resolved.
If the Agreement contains no dispute resolution procedures and the audit issues cannot be resolved by negotiation, the dispute shall
be submitted to mediation. In such event. promptly following one Party's written request for mediation, the Parties to the dispute
shall choose a mutually acceptable mediator and share the costs of mediation services equally. The Parties shall each have present
at the mediation at least one individual who has the authority to settle the dispute. The Parties shall make reasonable efforts to
ensure that the mediation commences within sixty (60) days of the date of the mediation request. Notwithstanding the above, any
Party may file a lawsuit or complaint (1) if the Parties are unable after reasonable efforts, to commence mediation within sixty (60)
days of the date of the mediation request, (2) for statute of limitations reasons. or (3) to seek a preliminary injunction or other
provisional judicial relief, if in its sole judgment an injunction or other provisional relief is necessary to avoid irreparable damage or
to preserve the status quo. Despite such action, the Parties sha1l continue to try to resolve the dispute by mediation.
53 E. 0 (Optiona/Prol'isiou-ForfeiturePeualties) 54
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If the Non-Operators fail to meet the deadline in Section /.5.C, any rmresol1·ed exceptions that were not addressed by the Non
Operators within one (1) year following receipt of the last substanlire response of the Operator shall be deemed to hm-e been
withdrawn by the NO!z·Operators. If the Operator fails to meet the deadlines in Section/.5.8 or /.5.C, any unresob•ed exceptions that we1-e not addressed by the Operator within one (I) year following receipt of the audit report or receipt of the last substantil'e response
of the Nmz.Qperators, whichel'er is latet; shall be deemed to haw been granted by the Operator and adjustments shall be made,
without interest, to the Joint Account.
61 6, APPROVAL BY PARTIES
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63 A. GENERALlV!A TIERS
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\\'here an approval or other agreement of the Parties or Non-Operators is expressly required under other Sections of this Accounting
Procedure and if the Agreement to which this Accounting Procedure is attached contains no contrary provisions in regard thereto, the
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0 COPAS 2005 Accounting Procedure Recommended by COPAS, Inc.
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Operator shalt notify all Non-Operators of the Operator's proposal and the agreement or approval of a majority in interest of the
Non-Operators shall be controlling on all Non-Operators.
This Section 1.6.A applies to specific situations of limited duration where a Party proposes to change the accounting for charges from
that prescribed in this Accounting Procedure. This provision does not apply to amendments to this Accounting Procedure, which are
covered by Section 1.6.B.
B. AMENDMENTS
10 If the Agreement to which this Accounting Procedure is attached contains no contrary provisions in regard thereto, this Accounting
11 Procedure can be amended by an affirmative vote of two {.____L_) or more Parties, one of which is the Operator,
12 having a combined working interest of at least one hundred percent {___lQQ__%), which approval shall be binding on all Parties,
13 provided, however, approval of at least one (l) Non-Operator shall be required. 14
15 C. AFFILIATES
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For the purpose of administering the voting procedures of Sections 1.6.A and 1.6.B, if Parties to this Agreement are Affiliates of each
other, then such Affiliates shall be combined and treated as a single Party having the combined working interest or Participating
Interest of such Affiliates.
For the purposes of administering the voting procedures in Section I.6.A, if a Non~Operator is an Affiliate of the Operator, votes
under Section 1.6.A shall require the majority in interest of the Non~Operator(s) after excluding the interest of the Operator's
Affiliate.
II. DIRECT CHARGES
27 The Operator shall charge the Joint Account with the following items:
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29 1. RENTALSANDROYALTIES
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31 Lease rentals and royalties paid by the Operator, on behalf of all Parties, for the Joint Operations.
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33 2. LABOR
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35 A. Salaries and wages, including incentive compensation programs as set forth in COPAS :MFI-37 ("Chargeability of Incentive
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Compensation Programs"), for:
(I) Operator's field employees directly employed On·site in the conduct of Joint Operations,
(2) Operator's employees directly employed on Shore Base Facilities. Offshore Facilities, or other facilities serving the Joint
Property if such costs are not charged under Section II.6 (Equipment and Facilities Fumished by Operator) or are not a
function covered under Section III (Owrhead).
(3) Operator,s employees providing First Level Supervision,
(4) Operator,s employees providing On-site Technical Services for the Joint Property if such charges are excluded from the
overhead rates in Section III (0\'erhead),
(5) Operator's employees providing Off-site Technical Services for the Joint Property if such charges are excluded from the
overhead rates in Section III (Overhead).
Charges for the Operator's employees identified in Section II.2.A may be made based on the employee's actual salaries and wages,
or in lieu thereof, a day rate representing the Operator's average salaries and wages of the employee's specific job category.
Charges for personnel chargeable under this Section ll2.A who are foreign nationals shall not exceed comparable compensation paid
to an equivalent U$. employee pursuant to this Section II.2, unless otherwise approved by the Parties pursuant to Section
1.6.A (General Matters).
59 B. Operator's cost of holiday. vacation, sickness, and disability benefits, and other customary allowances paid to employees whose
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salaries and wages are chargeable to the Joint Account under Section II.2.A, excluding severance payments or other termination
allowances. Such costs under this Section ll2.B may be charged on a "when and as-paid basis" or by "percentage assessment" on the
amount of salaries and wages chargeable to the Joint Account under Section IL2.A. If percentage assessment is used, the rate shall
be based on the Operator's cost experience.
65 C. Expenditures or contributions made pursuant to assessments imposed by governmental authority that are applicable to costs
66 chargeable to the Joint Account under Sections 112.A and B.
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D. Personal Expenses of personnel whose salaries and wages are chargeable to the Joint Account under Section ll.2.A when the
expenses are incurred in connection with directly chargeable activities.
E. Reasonable relocation costs incurred in transferring to the Joint Property personnel wh.ose salaries and wages are chargeable to the
Joint Account under Section II.2.A. Notwithstanding the foregoing, relocation costs that result from reorganization or merger of a
Party, or that are for the primary benefit of the Operator, shall not be chargeable to the Joint Account. Extraordinary relocation
costs, such as those incurred as a result of transfers from remote locations, such as Alaska or overseas, shall not be charged to the
Joint Account unless approved by the Parties pursuant to Section l6.A (General A1atters).
10 F. Training costs as spedfied in COPAS lvi.FI-35 ("Charging of Training Costs to the Joint Account") for personnel whose salaries and
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wages are chargeable under Section 11.2.A. This training charge shall include the wages, salaries, training course cost, and Personal
Expenses incurred during the training session. The training cost shall be charged or allocated to the property or properties directly
benefiting from the training. The cost of the training course shall not exceed prevailing commercial rates, where such rates are
available.
16 G. Operator's current cost of established plans for employee benefits, as described in COPAS MFI-27 ("Employee Benefits Chargeable
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to Joint Operations and Subject to Percentage Limitation"), applicable to the Operatoes labor costs chargeable to the Joint Account
under Sections II.2.A and B based on the Operator's actual cost not to exceed the employee benefits limitation percentage most
recently recommended by COPAS.
21 H. Award payments to employees, in accordance with COPAS MFI-49 ("Awards to Employees and Contractors") for personnel whose
22 salaries and wages are chargeable under Section ll.2.A.
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24 3. MATERIAL
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26 Material purchased or furnished by the Operator for use on the Joint Property in the conduct of Joint Operations as provided under Section
27 IV (Material Purchases, Transfers, and Dispositions). Only such Material shall be purchased for or transferred to the Joint Property as
28 may be required for immediate use or is reasonably practical and consistent with efficient and economical operations. The accumulation
29 of surplus stocks shall be avoided.
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31 4. TRANSPORTATION
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to the Joint Property, shall be charged to the receiving property using one of the methods listed below. Transportation of Material
from the Joint Property to the Operator's warehouse or other storage point shall be paid for by the Joint Property using one of the
methods listed below:
{l) If the actual trucking charge is less than or equal to the Excluded Amount the Operator may charge actual trucking cost or a
theoretical charge from the Railway Receiving Point to the Joint Property. The basis for the theoretical charge is the per
hundred weight charge plus fuel surcharges from the Railway Receiving Point to the Joint Property .. The Operator shall
consistently apply the selected alternative.
(2) If the actual trucking charge is greater than the Excluded Amount, the Operator shall charge Equalized Freight. Accessorial
charges such as loading and unloading costs, split pick-up costs, detention, call out charges, and permit fees shall be charged
directly to the Joint Property and shall not be included when calculating the Equalized Freight.
49 5. SERVICES
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51 The cost of contract services, equipment, and utilities used in the conduct of Joint Operations, except for contract services, equipment, and
52 utilities covered by Section HI (0•-erhead), or Section ll.7 (Affiliates), or excluded under Section JL9 (Legal Rrpense). Awards paid to
53 contractors shall be chargeable pursuant to COPAS MFI-49 ('Awards to Employees and Contractors").
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55 The costs of third party Technical Services are chargeable to the extent excluded from the overhead rates under Section III (O~'erlzead).
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59 In the absence of a separately negotiated agreement, equipment and facilities furnished by the Operator will be charged as follows:
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production facilities, Shore Base Facilities, Offshore Facilities, and Field Offices. at rates commensurate with the costs of ownership
and operation. The cost of Field Offices shall be chargeable to the extent the Field Offices provide direct service to personnel who
are chargeable pursuant to Section II.2.A (Labor). Such rates may include labor, maintenance, repairs, other operating expense,
insurance, taxes, depreciation using straight line depreciation method, and interest on gross investment less accumulated depreciation
not to exceed eiaht percent ( 8 %) per annum; provided, however, depreciation shall not be charged when the
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equipment and facilities investment have been fully depreciated. The rate may include an element of the estimated cost for
abandonment, reclamation, and dismantlement. Such rates shall not exceed the average commercial rates currently prevailing in the
immediate area of the Joint Property.
B. In lieu of charges in Section 11.6.A above, the Operator may elect to use average commercial rates prevailing in the immediate area
of the Joint Property, less twenty percent (20%). If equipment and facilities are charged under this Section II.6.B, the Operator shall
adequately document and support commercial rates and shall periodically review and update the rate and the supporting
documentation. For automotive equipment, the Operator may elect to use rates published by the Petroleum Motor Transport Association (PMT A) or such other organization recognized by COPAS as the official source of rates.
11 7. AFFILIATES
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may be made without the approval of the Parties provided (i) the Affiliate is identified and the Affiliate goods and services are
specifically detailed in the approved AFE or other authorization, Mel (ii) the tetal eests fer sueh Affiliate's geeds MEl seniees Silled
~eh iae:HvidHal prejeet de net e.teeed $ 15 009 eer · .. ell If the tetal eests fer an Afllliate's geeds and sen iees eharged ta
iadi ·iel1:1al fl£ejeet are net SfJeeifieally detailed in the apfJreveEI t"tFE er autl:ierieatiea er ereeed sueh ameuat, eharges fer SHeh
Affiliate shall reEJ:HiFe Bflpre, al efthe PaRies, pHrsHant te 8eetiea I.e. A fPeneta! J.fauers).
B-:----¥-er an J"\ffiliate's geeds andfer sertiees used in BfJeratieas net refJuiFiAg an A:FE er etheF autherizatien frem the 1-ffin Operaters, eflat=ges fer sueh /' ffiliate's geeds and serYiees shall FetiHire appre, alefthe Parties, fll:lFSHant te Seetien Ui.A (Genera! },fa::-ers), if the
eflarges eneeed $ 25 000 in a gi ,·en ealen8aq ear.
C. The cost of the Affiliate~s goods or services shall not exceed average commercial rates prevailing in the area of the Joint Property,
unless the Operator obtains the Non-Operators' approval of such rates. The Operator shall adequately document and support
commercial rates and shall periodically review and update the rate and the supporting documentation; provided, however,
documentation of commercial rates shall not be required if the Operator obtains Non~Operator approval of its Affiliate's rates or
charges prior to billing Non~Operators for such Affiliate's goods and services. Notwithstanding the foregoing, direct charges for
Affiliate-owned communication facilities or systems shall be made pursuant to Section ll.l2 (Communications).
If the Parties fail to designate an amount in Sections II.7.A or II.7.B, in each instance the amount deemed adopted by the Parties as a
result of such omission shall be the amount established as the Operator's expenditure limitation in the Agreement. If the Agreement
does not contain an Operator's expenditure limitation, the amount deemed adopted by the Parties as a result of such omission shall be zero dollars($ 0.00).
8. DAMAGES AND LOSSES TO JOINT PROPERTY
All costs or expenses necessary for the repair or replacement of Joint Property resulting from damages or losses incurred, except to the extent such damages or losses result from a Party's or Parties' gross negligence or willful misconduct, in which case such Party or Parties
shall be solely liable.
The Operator shall furnish the Non~Operator written notice of damages or losses incurred as soon as practicable after a report has been
received by the Operator.
9, LEGAL EXPENSE
Recording fees and costs of handling, settling, or otherwise discharging litigation, claims, and liens incurred in or resulting from
operations under the Agreement, or necessary to protect or recover the Joint Property, to the extent permitted under the Agreement. Costs
of the Operator's or Affiliate's legal staff or outside attorneys, including fees and expenses, are not chargeable unless approved by the
Parties pursuant to Section 16.A (General Matters) or othenvise provided for in the Agreement.
Notwithstanding the forego~~~f~~~a~~~t~ec~~fs~?tfrc~~sceu~i~0~g;it~~~~s~11] 1};~t;,ea1~ fcicg~~\'J%i~~~o~~~~~~i1ft\:ueC:ifu~hations (including
preliminary, supplemental, shut-in royalty opinions, division order title opinions), and curative work shall be chargeable to the extent
pennitted as a direct charge in the Agreement.
10. TAXES AND PERr<fiTS
All taxes and permitting fees of every kind and nature, assessed or levied upon or in connection with the Joint Property, or the production
therefrom, and which have been paid by the Operator for the benefit of the Parties, including penalties and interest, except to the extent the
penalties and interest result from the Operator's gross negligence or 'villful misconduct.
If ad valorem taxes paid by the Operator are based in whole or in part upon separate valuations of each Party's working interest, then
nohvithstanding any contrary provisions, the charges to the Parties will be made in accordance with the tax value generated by each Party's
working interest.
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Costs of tax consultants or advisors. the Operator's employees, or Operator's Affiliate employees in matters regarding ad valorem or other
tax matters, are not permitted as direct charges unless approved by the Parties pursuant to Section I.6.A (Geneml }.{alters).
Charges to the Joint Account resulting from sales/use tax audits, including extrapolated amounts and penalties and interest, are permitted,
provided the Non-Operator shall be allowed to review the invoices and other underlying source documents which served as the basis for
tax charges and to determine that the correct amount of taxes were charged to the Joint Account. If the Non-Operator is not permitted to
review such documentation, the sales/use tax amount shall not be directly charged unless the Operator can conclusively document the
amount owed by the Joint Account.
10 11. INSURANCE II
12 Net premiums, 7e~a~atipJ~in~~~i~~~ni~~~1r~~et~tig~sc~~J for Joint Operations for the protection of the Parties. If Joint Operations are
13 conducted at locations where the Operator acts as self-insurer in regard to its worker's compensation and employer's liability insurance
14 obligation, the Operator shall charge the Joint Account manual rates for the risk assumed in its self-insurance program as regulated by the
15 jurisdiction governing the Joint Property. In the case of offshore operations in federal waters, the manual rates of the adjacent state shall be
16 used for personnel performing work On-site, and such rates shall be adjusted for offshore operations by the U.S. Longshoreman and
17 Harbor \Vorkers (USL&H) or Jones Act surcharge, as appropriate.
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21 Costs of acquiring, leasing, installing, operating, repairing, and maintaining communication facilities or systems, including satel1ite, radio
22 and microwave facilities, behveen the Joint Property and the Operator's office(s) directly responsible for field operations in accordance
23 with the provisions of COPAS MFI-44 ("Field Computer and Communication Systems"). If the communications facilities or systems
24 serving the Joint Property are Operator-0\vned, charges to the Joint Account shall be made as provided in Section II.6 (Equipment and
25 Facilities Fumished by. Operator). If the communication facilities or systems serving the Joint Property are owned by the Operator~s
26 Affiliate. charges to the Joint Account shall not exceed average commercial rates prevailing in the area of the Joint Property. The Operator
27 shaH adequately document and support commercial rates and shaH periodically review and update the rate and the supporting
28 documentation.
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30 13. ECOLOGICAL, ENVIRONMENTAL, AND SAFETY
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32 Costs incurred for Technical Services and drafting to comply with ecological, environmental and safety Laws or standards recommended by
33 Occupational Safety and Health Administration (OSHA) or other regulatory authorities. All other labor and functions incurred for
34 ecological, environmental and safety matters, including management, administration, and permitting, shall be covered by Sections II.2
35 (Labor), II.S (Sen•ices), or Section III (Overhead), as applicable.
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37 Costs to provide or have available pollution containment and removal equipment plus actual costs of control and cleanup and resulting
38 responsibilities of oil and other spills as well as discharges from permitted outfalls as required by applicable Laws, or other pollution
39 containment and removal equipment deemed appropriate by the Operator for prudent operations, are directly chargeable.
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43 Costs incurred for abandonment and reclamation of the Joint Property. including costs required by lease agreements or by Laws.
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45 15. OTHER EXPENDITURES 46
47 Any other expenditure not covered or dealt with in the foregoing provisions of this Section II (Direct Charges), or in Section III
48 (Overhead) and which is of direct benefit to the Joint Property and is incurred by the Operator in the necessary and proper conduct of the
49 Joint Operations. Charges made under this Section II.l5 shall require approval of the Parties, pursuant to Section I.6.A (General Jdatters).
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52 ill. OVERHEAD
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54 As compensation for costs not specifically identified as chargeable to the Joint Account pursuant to Section II (Direct Charges), the Operator
55 shall charge the Joint Account in accordance with this Section III.
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57 Functions included in the overhead rates regardless of whether performed by the Operator, Operator's Affiliates or third parties and regardless
58 of location, shalt include, but not be limited to, costs and expenses of:
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warehousing, other than for warehouses that are jointly owned under this Agreement
design and drafting (except when allowed as a direct charge under Sections 11.13, III.LA(ii), and III.2, Option B)
inventory costs not chargeable under Section V (Inventories of Controllable Material)
procurement
administration
accounting and auditing
gas dispatching and gas chart integration
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human resources
management
supervisi~n not directly charged under Section II.2 (Labo~d as d fined in Technical Services legal serv1ces not directly chargeable under Section II.9/ (Legat'f..~pense) taxation, other than those costs identified as directly chargeable under Section II. 10 (Taxes and Permits) preparation and monitoring of pennits and certifications~ preparing regulatory reports~ appearances before or meetings with
governmental agencies or other authorities having jurisdiction over the Joint Property, other than On-site inspections; reviewing,
interpreting, or submitting comments on or lobbying with respect to Laws or proposed La\vs.
10 Overhead charges shall include the salaries or wages plus applicable payroll burdens, benefits, and Personal Expenses of personnel performing
11 overhead functions, as well as office and other related expenses of overhead functions. 12
13 1. OVERHEAD-DRILLING AND PRODUCING OPERATIONS
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15 As compensation for costs incurred but not chargeable under Section II (Direct Charges) and not covered by other provisions of this
16 Section Ill, the Opemtor shall charge on either:
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0 (Alternative 1) Fixed Rate Basis, Section lll.I.B.
a (.'.JternRti, e 2) PeFeeata0 e Basis, Seetisa Ill. I. C.
21 A. TECHNICAL SERVICES
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(i) Except as otherwise provided in Section ll.13 (Ecological Environmental, and Safety) and Section lll.2 (Overhead- Major
Constnrclion and Catastrophe), or by approval of the Parties pursuant to Section 1.6.A (General.A1allers), the salaries, wages,
related payroll burdens and benefits, and Personal Expenses for On-site Technical Services, in'cluding third party Technical
Services:
0 (Alternative 1-Direct) shall be charged !li!:££! to the Joint Account.
a f.' lternati > C 2 0 > erkead) shall ~e CB, eFed bj the 9 > erkead retes.
(ii) Except as otherwise provided in Section ll.13 (Ecological, Environmental, and Safety) and Section lll.2 (OI'erhead- Major
Constmction and Catastrophe), or by approval of the Parties pursuant to Section l.6.A (General Matters), the salaries, wages,
related payroll burdens and benefits, and Personal Expenses for Off-site Technical Services, including third party Technical
Services:
a f.',Jteraati' e 1 f,ll Q,•erkend) shall be ee, eFed bj the 8' erkead rates.
B f!JteFnati. e 2 }' lllliFeet) shall be ehaF0e~ dit eet te the JeiAt AeeeuRt.
0 (Alternative 3- Drilling Direct) shall be charged direct to the Joint Account, mill: to the extent such Technical Services
are directly attributable to drilling, redrilling, deepening, or sidetracking operations, through completion, temporary
abandonment, or abandonment if a dry hole. Off-site Technical Services for all other operations, including workover,
recompletion. abandonment of producing wells, and the construction or expansion of fixed assets not covered by Section
lll.2 (OI'erhead- Major Constmction and Catastrophe) shall be covered by the overhead rates.
47 Not\vithstanding anything to the contrary in this Section III, Technical Services provided by Operator's Affiliates are subject to limitations
48 set forth in Section 11.7 (Affiliates). Charges for Technical personnel performing non-technical work shall not be governed by this Section
49' III.l.A, but instead governed by other provisions of this Accounting Procedure relating to the type of work being performed. 50
51 B. OVERHEAD-FIXED RATE BASIS
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;3 (!) a. The Operator shall charge the Joint Account at the following rates per well per month:
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Drilling Well Rate per month $.~9'-'-"'55'-'0"'.0"'0'---- (prorated for less than a full month)
Producing Well Rate per month $.__,c95,_,5,.,.0"'0'-----
(l) Yo~ ?le1~ator shall charge the Joint Account at the following rates per well, per month for wells drilled to a total depth greater than
~J~~~~n~We~a~Fe~!"~b~~~~n~i?8o (prorated for less than a full month) (2) Apphcahon of0ver1ead-Dnlling-weltR.ate shall be as follows:
(a) Charges for onshore drilling wells shall begin on the spud date and terminate on the date the drilling and/or completion
equipment used on the well is released, whichever occurs later. Charges for offshore and inland waters drilling wells shall
begin on the date the drilling or completion equipment arrives on location and terminate on the date the drilling or completion
equipment moves off location, or is released, whichever occurs first. No charge shall be made during suspension of drilling
and/or completion operations for fifteen (15) or more consecutive calendar days.
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(b) Charges for any well undergoing any type of workover, recompletion, and/or abandonment for a period of five (5) or more
consecutive work-days shall be made at the Drilling \Vetl Rate. Such charges shall be applied for the period from date
operations, with rig or other units used in operations, commence through date of rig or other unit release, except that no charges
shall be made during suspension of operations for fifteen (15) or more consecutive calendar days.
(3) Application of Overhead-Producing Well Rate shall be as follows:
(a) An active well that is produced, injected into for recovery or disposal, or used to obtain water supply to support operations for
any portion of the month shall be considered as a one-welt charge for the entire month.
(b) Each active completion in a multi-completed well shall be considered as a one-well charge provided each completion is
considered a separate well by the governing regulatory authority.
(c) A one-well charge shall be made for the month in which plugging and abandonment operations are completed on any well,
unless the Drilling Well Rate applies, as provided in Sections Ill. LB.(2)(a) or (b). This one-well charge shall be made whether
or not the well has produced.
(d) An active gas wei1~~~rlA0C:J1~~~50!~~~~o~~~1~cf~·/~¥¥!~/~~ ~f~~~icf:l~~~~~~~gJ~~r~~r transporter to take production shall
be considered as a one-well charge provided the gas well is directly connected to a permanent sales outlet.
(e) Any well not meeting the criteria set forth in Sections IILI.B.(3) (a}, (b), (c), or (d) shall not qualify for a producing overhead
charge.
24 (4) The well rates shall be adjusted on the first day of April each year following the effective date of the Agreement; provided,
25 however, if this Accounting Procedure is attached to or otherwise governing the payout accounting under a farmout agreement, the
26 rates shall be adjusted on the first day of April each year following the effective date of such fannout agreement. The adjustment
27 shall be computed by applying the adjustment factor most recently published by COPAS. The adjusted rates shall be the initial or
28 amended rates agreed to by the Parties increased or decreased by the adjustment factor described herein, for each year from the
29 effective date of such rates, in accordance with COPAS MFI-47 ("Adjustment of Overhead Rates"). 30
31 C. OVIiRH!lAD PERCE~ITAGE!lAS!S
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33 (!) Opemtor shall ehar0 e the JoiRt 'eeouRt at the fell a, ;ag Fates: 34
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(a) De, elopffieat Rffie pmeRt L=l% afthe east of de, elopffieat of the JoiRt PFopef!), e"elusi .e ofeosts
r•e .ided uodeF SeetioR 11.9 (leg<~/ Erpe.!Se) aod all MateFial sal .age mdits.
38 (b) OperatiRg Rate pereeat L='4) of the eest of aperotiag the hliat Prop eft;', e"'lusiYe of eests
39 p•e ;ided URdeF Seetieas ll.l (Ren.'als 11m! R8j'Bl:ie£) aod 11.9 (legs' EYpe~>Si); all MateFial saL age mdits; the , alua
40 ef substanees ~1:1rehased fer enfiaHeeel reee ISF); all f!FBfleftj aael ad , alerem ta:·es, anel BR) ether ta.res and essessmeRts tHat
41 are le.ied, assessed, aHd t~aieluf3BH the mifteral interest iR and ta the JeiatPref3eft). 42
43 (2) Applieatioo efO, effiead Pmeota0 e llasis shall be as fell e.,,;: 44
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(~ The De, elepffient Rate shall be applied te all eests io eoRoeetieR .. ;th:
[i] drilling, redrilliag, sieletraeking, er deepening efa o\ell [ii] a well unelergeing plugbaek er , erke ;er eperatiens fer a t~eried ef fi, e (5) er mere eeHseeuth e werk days
[iii] preliminary e.·fleRelitHres aeeessat=y iR f!Feparatiea fer Srilling
[i .-] e.<penelit~:~res iReHFFeel is abeadeRiH~ , hea the .. ell is Ret eemJ3leteel as a f3Fe8eeer
[•] eenstruetien er installatieA ef fi.:ed assets, the e.tj3BAsien ef:fL:eel assets atul BAj ether prejeet elearl) eliseernible as a
fi.;.ed asset, ether thaa Hajer CeRstFHetiea er Catastrephe as elefiReel ia SeetieR III.2 (Orerhead},{ajer Cs:15:ruet-ien
snd Ce!aslrephe).
(b) The OpeFatiR0 Rate shall be applied te all etheF eests io eeooeetioo .. ith Jeiot OpeFatieos, e.-eept these subjeet te Seetieo 111.2
58 2. OVERHEAD-l\1AJOR CONSTRUCTION AND CATASTROPHE 59
60 To compensate the Operator for overhead costs incurred in connection with a Major Construction project or Catastrophe, the Operator
61 shall either negotiate a rate prior to the beginning of the project, or shall charge the Joint Account for overhead based on the following
62 rates for any Major Construction project in excess of the Operator's expenditure limit under the Agreement, or for any Catastrophe
63 regardless of the amount. If the Agreement to which this Accounting Procedure is attached does not contain an expenditure limit, Major
64 Construction Overhead shall be assessed for any single Major Construction project costing in excess of$100,000 gross. 65
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Major Construction shall mean the construction and installation of fixed assets, the expansion of fixed assets, and any other project clearly
discernible as a fixed asset required for the development and operation of the Joint Property, or in the dismantlement, abandonment,
removal, and restoration ofplatfonns, production equipment, and other operating facilities.
Catastrophe is defined as a sudden calamitous event bringing damage, loss, or destruction to property or the environment, such as an oil
spill, blowout, explosion, fire, storm, hurricane, or other disaster. The overhead rate shall be applied to those costs necessary to restore the
Joint Property to the equivalent condition that existed prior to the event.
A. If the Operator absorbs the engineering, design and drafting costs related to the project:
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11 (I) __ 5 __ % of total costs if such costs are less than $!00,000; plus
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(2) __ 3 __ % of total costs in excess of$IOO,OOO but less than $1,000,000; plus
(3) __ 2 __ % of total costs in excess of$I,OOO,OOO.
17 B. If the Operator charges engineering, design and drafting costs related to the project directly to the Joint Account:
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(I) __ 3 __ % of total costs if such costs are less than $!00,000; plus
(2) __ 2 __ % of total costs in excess of$IOO,OOO but less than $I,OOO,OOO; plus
(3) __ I __ % of total costs in excess of$1,000,000.
25 Total cost shall mean the gross cost of any one project. For the purpose of this paragraph, the component parts of a single Major
26 Construction project shall not be treated separately, and the cost of drilling and workover wells and purchasing and installing pumping
27 units and downhole artificial lift equipment shall be excluded. For Catastrophes, the rates shall be applied to all costs associated with each
28 single occurrence or event.
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30 On each project, the Operator shall advise the Non-Operator(s) in advance which of the above options shall apply.
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32 For the purposes of calculating Catastrophe Overhead, the cost of drilling relief wells, substitute wells, or conducting other well operations
33 directly resulting from the catastrophic event shall be included. Expenditures to which these rates apply shall not be reduced by salvage or
34 insurance recoveries. Expenditures that qualifY for Major Construction or Catastrophe Overhead shall not qualify for overhead under any
35 other overhead provisions.
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37 In the event of any conflict between the provisions of this Section IIJ.2 and the provisions of Sections II.2 (Labor), II.S (Services), or Il.7
38 (Affiliates), the provisions of this Section IIJ.2 shall govern.
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40 3. AM.ENDMENT OF OVERHEAD RATES
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13 or excessive, in accordance with the provisions of Section I.6.B (Amendments). 44
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IV. MATERIAL PURCHASES, TRANSFERS, AND DISPOSITIONS
48 The Operator is responsible for Joint Account Material and shall make proper and timely charges and credits for direct purchases, transfers, and
49 dispositions. The Operator shall provide all Material for use in the C{)nduct of Joint Operations; however, Material may be supplied by the Non~
50 Operators, at the Operator's option. Material furnished by any Party shall be furnished without any express or implied warranties as to quality,
51 fitt:~ess for use, or any other matter.
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53 1. DIRECT PURCHASES
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55 Direct purchases shall be charged to the Joint Account at the price paid by the Operator after deduction of all discounts received. The
56 Operator shall make good faith efforts to take discounts offered by suppliers, but shall not be liable for failure to take discounts except to
57 the extent such failure was the result of the Operator's gross negligence or willful misconduct. A direct purchase shall be deemed to occur
58 when an agreement is made between an Operator and a third party for the acquisition of Material for a specific well site or location.
59 Material provided by the Operator under "vendor stocking programs," where the initial use is for a Joint Property and title of the Material
60 does not pass from the manufacturer, distributor, or agent until usage, is considered a direct purchase. If?\1aterial is found to be defective
61 or is returned to the manufacturer, distributor, or agent for any other reason, credit shall be passed to the Joint Account within sixty (60)
62 days after the Operator has received adjustment from the manufacturer, distributor, or agent.
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2. TRANSFERS
A transfer is determined to occur when the Operator (i) furnishes Material from a storage facility or from another operated property, (ii) has
assumed liability for the storage costs and changes in value, and (iii) has previously secured and held title to the transferred Material.
Similarly, the removal of Material from the Joint Property to a storage facility or to another operated property is also considered a transfer~
provided, however, Material that is moved from the Joint Property to a storage location for safe-keeping pending disposition may remain
charged to the Joint Account and is not considered a transfer. Material shall be disposed of in accordance with Section IV.3 (Disposition of
Swplus) and the Agreement to which this Accounting Procedure is attached.
10 A. PRICING
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The value of Material transferred to/from the Joint Property should generally reflect the market value on the date of physical transfer.
Regardless of the pricing method used, the Operator shall make available to the Non-Operators sufficient documentation to verify the
Material valuation. \Vhen higher than specification grade or size tubulars are used in the conduct of Joint Operations. the Operator
shall charge the Joint Account at the equivalent price for well design specification tubulars. unless such higher specification grade or
sized tubulars are approved by the Parties pursuant to Section I.6.A (General Matters). Transfers of new Material will be priced
using one of the following pricing methods; provided, however, the Operator shall use consistent pricing methods, and not alternate
between methods for the purpose of choosing the method most favorable to the Operator for a specific transfer:
(I) Using published prices in effect on date of movement as adjusted by the appropriate COPAS Historical Price Multiplier (HPM)
or prices provided by the COPAS Computerized Equipment Pricing System (CEPS).
(a) For oil count!)' tubulars and line pipe, the published price shall be based upon eastern mill carload base prices (Houston,
Texas, for special end) adjusted as of date of movement, plus transportation cost as defined in Section IV.2.B (Freighl).
(b) For other Material, the published price shall be the published list price in effect at date of movement, as listed by a Supply
Store nearest the Joint Property where like Material is normally available, or point of manufacture plus transportation
costs as defined in Section IV.2.B (Freighl).
(2) Based on a price quotation from a vendor that reflects a current realistic acquisition cost.
(3) Based on the amount paid by the Operator for like Material in the vicinity of the Joint Property within the previous twelve (12)
months from the date of physical transfer.
(4) As agreed to by the Participating Parties for Material being transferred to the Joint Property, and by the Parties owning the
Material for Material being transferred from the Joint Property.
38 B. FREIGHT
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Transportation costs shall be added to the Material transfer price using the method prescribed by the COPAS Computerized
Equipment Pricing System (CEPS). If not using CEPS, transportation costs shall be calculated as follows:
(I) Transportation costs for oil count!)' tubulars and line pipe shall be calculated using the distance from eastern mill to the
Railway Receiving Point based on the carload weight basis as recommended by the COPAS MFI-38 ("Material Pricing
Manual") and other COPAS MF!s in effect at the time of the transfer.
(2) Transportation costs for special mill items shall be calculated from that mill's shipping point to the Railway Receiving Point.
For transportation costs from other than eastern mills, the 30,000-pound interstate truck rate shall be used. Transportation costs
for macaroni tubing shaH be calculated based on the interstate truck rate per weight of tubing transferred to the Railway
Receiving Point.
(3) Transportation costs for special end tubular goods shall be calculated using the interstate truck rate from Houston, Texas, to the
Railway Receiving Point.
(4) Transportation costs for Material other than that described in Sections IV.2.B.(1) through (3), shall be calculated from the
Supply Store or point of manufacture, whichever is appropriate, to the Railway Receiving Point
Regardless of whether using CEPS or manually calculating transportation costs, transportation costs from the Railway Receiving Point
to the Joint Property are in addition to the foregoing, and may be charged to the Joint Account based on actual costs incurred. All
transportation costs are subject to Equalized Freight as provided in Section II.4 (Transportation) of this Accounting Procedure.
62 C. TAXES
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Sales and use taxes shall be added to the Material transfer price using either the method contained in the COPAS Computerized
Equipment Pricing System (CEPS) or the applicable ta.x rate in eff~t for the Joint Property at the time and place of transfer. In either
case. the Joint Account shall be charged or credited at the rate that would have governed had the Material been a direct purchase.
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COPAS 2005 Accounting Procedure Recommended by COPAS, Inc.
(1) Condition "A"- New and unused Material in sound and serviceable condition shall be charged at one hundred percent (100%)
of the price as determined in Sections IV.2.A (Pricing), IV.2.B (Freight), and IV.2.C (Taxes). Material transferred from the
Joint Property that was not placed in service shall be credited· as charged without gain or loss; provided. however, any unused
Material that was charged to the Joint Account through a direct purchase will be credited to the Joint Account at the original
cost paid less restocking fees charged by the vendor. New and unused Material transferred from the Joint Property may be
credited at a price other than the price originally charged to the Joint Account provided such price is approved by the Parties
owning such Material, pursuant to Section 1.6.A (General Matters). All refurbishing costs required or necessary to return the
l\1aterial to original condition or to correct handling, transportation, or other damages will be borne by the divesting property.
The Joint Account is responsible for Material preparation, handling, and transportation costs for new and unused Material
charged to the Joint Property either through a direct purchase or transfer. Any preparation costs incurred, including any internal
or external coating and wrapping, will be credited on new Material provided these services were not repeated for such Material
for the receiving property.
(2) Condition "B"- Used Material in sound and serviceable condition and suitable for reuse without reconditioning shall be priced
by multiplying the price determined in Sections N.2.A (Pricing), IV.2.B (Freighl), and IV.2.C (Taxes) by seventy-live percent
(75%).
Except as provided in Section IV.2.D(3), all reconditioning costs required to return the Material to Condition "B" or to correct
handling, transportation or other damages will be borne by the divesting property.
If the Material was originally charged to the Joint Account as used Material and placed in service for the Joint Property, the
Material will be credited at the price detenmined in Sections IV.2.A (Pricing), IV.2.B (F1~igh1), and N.2.C (Taxes) multiplied
by sixty-five percent (65%).
Unless otherwise agreed to by the Parties that paid for such Material, used Material transferred from the Joint Property that was
not placed in service on the property shall be credited as charged without gain or loss.
(3) Condition "C'' -Material that is not in sound and serviceable condition and not suitable for its original function until after
reconditioning shall be priced by multiplying the price determined in Sections IV.2.A (Pricing), IV.2.B (Freighl), and IV.2.C
(Tates) by fifty percent (50%).
The cost of reconditioning may be charged to the receiving property to the extent Condition "C" value, plus cost of
reconditioning, does not exceed Condition "B" value.
(4) Condition "D" - 1\faterial that (i) is no longer suitable for its original purpose but useable for some other purpose, (ii) is
obsolete, or (iii) does not meet original specifications but still has value and can be used in other applications as a substitute for
items with different specifications, is considered Condition "D" MateriaL Casing, tubing, or dri1l pipe used as line pipe shall be
priced as Grade A and B seamless line pipe of comparable size and weight Used casing, tubing, or drill pipe utilized as line
pipe shall be priced at used line pipe prices. Casing, tubing, or drill pipe used as higher pressure service lines than standard line
pipe, e.g., power oil lines, shall be priced under normal pricing procedures for casing, tubing, or drill pipe. Upset tubular goods
shall be priced on a non-upset basis. For other items, the price used should result in the Joint Aceount being charged or credited
with the value of the service rendered or use of the Material, or as agreed to by the Parties pursuant to Section 1.6.A (General
Mailers).
(5) Condition "E"- Junk shall be priced at prevailing scrap value prices.
49 E. OTIIER PRICING PROVISIONS
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(I) Preparation Costs
Subject to Section II (Direct Charges) and Section III (01·erhead) of this Accounting Procedure, costs incurred by the Operator
in making Material serviceable including inspection, third party surveillance services, and other similar services will be charged
to the Joint Account at prices which reflect the Operator's actual costs of the services. Documentation must be provided to the
Non-Operators upon request to support the cost of service. New coating andfor wrapping shall be considered a component of
the Materials and priced in accordance with Sections IV.! (Dil·ec/ Purchases) or IV.2.A (Pricing), as applicable. No charges or
credits shall be made for used coating or wrapping. Charges and credits for inspections shalt be made in accordance \vith
COPAS MFI-38 ("Material Pricing Manual").
(2) Loading and Unloading Costs
Loading and unloading costs related to the movement of the Material to the Joint Property shall be charged in accordance with
the methods specified in COPAS MFI-38 ("Material Pricing Manual").
COPYRIGHT© 2005 by Council of Petroleum Accountants Societies, Inc. (COPAS) 13
® COPAS 2005 Accounting Procedure Recommended by COPAS, Inc.
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3. DISPOSITION OF SURPLUS
Surplus Material is that Material, whether new or used, that is no longer required for Joint Operations. The Operator may purchase, but
shall be under no obligation to purchase, the interest of the Non-Operators in surplus Material.
Dispositions for the purpose of this procedure are considered to be the relinquishment of title of the Material from the Joint Property to
either a third party, a Non-Operator, or to the Operator. To avoid the accumulation of surplus Material, the Operator should make good
faith efforts to dispose of surplus within twelve (12} months through buy/sale agreements, trade, sale to a third party, division in kind, or
other dispositions as agreed to by the Parties.
11 Disposal of surplus Materials shall be made in accordance with the terms of the Agreement to which this Accounting Procedure is
12 aHached. If the Agreement contains no provisions governing disposal of surplus :rvfaterial, the following terms shall apply: 13
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The Operator may, through a sale to an unrelated third party or entity, dispose of surplus Material having a gross sale value that
is less than or equal to the Operator's expenditure limit as set forth in the Agreement to which this Accounting Procedure is
attached without the prior approval of the Parties owning such Material.
If the gross sale value exceeds the Agreement expenditure limit, the disposal must be agreed to by the Parties owning such
Material.
Operator may purchase surplus Condition "A" or "B" Material without approval of the Parties owning such Material, based on
the pricing methods set forth in Section IV.2 (Transfers).
Operator may purchase Condition ''C" Material without prior approval of the Parties owning such Material if the value of the
Materials, based on the pricing methods set forth in Section IV.2 (Transfers), is less than or equal to the Operator's expenditure
limitation set forth in the Agreement. The Operator shall provide documentation supporting the classification of the Material as
Condition C.
Operator may dispose of Condition "D" or "E" Material under procedures normally utilized by OperatOr without prior approval
of the Parties owning such Material.
32 4. SPECIAL PRICING PROVISIONS
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\Vhenever Material is available only at inflated prices due to national emergencies, strikes, government imposed foreign trade
restrictions, or other unusual causes over which the Operator has no control, for direct purchase the Operator may charge the Joint
Account for the required Material at the Operator's actual cost incurred in providing such Material, making it suitable for use, and
moving it to the Joint Property. Material transferred or disposed of during premium pricing situations shall be valued in accordance
with Section IV.2 (Transfers) or Section IV.3 (Disposition oJSwplus), as applicable.
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Items fabricated by the Operator's employees, or by contract laborers under the direction of the Operator, shall be priced using the
value of the Material used to construct the item plus the cost of labor to fabricate the item. If the Material is from the Operator's
scrap or junk account, the Material shall be priced at either t\venty-five percent (25%) of the current price as detennined in Section
IV.2.A (Pricing) or scrap value, whichever is higher. In no event shall the amount charged exceed the value of the item
commensurate with its use.
50 C. MILL REJECTS
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?>.1ill rejects purchased as "limited service" casing or tubing shall be priced at eighty percent (80%) ofK-55/J-55 price as determined in
Section IV.2 (Transfers). Line pipe converted to casing or tubing with casing or tubing couplings attached shall be priced as K-55/J-
55 casing or tubing at the nearest size and weight.
V. INVENTORIES OF CONTROLLABLE MATERIAL
60 The Operator shall maintain records of Controllable Material charged to the Joint Account, with sufficient detail to perform physical inventories.
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62 Adjustments to the Joint Account by the Operator resulting from a physical inventory of Controllable Material shall be made within twelve (12)
63 months following the taking of the inventory or receipt of Non-Operator inventory report. Charges and credits for overages or shortages will be
64 valued for the Joint Account in accordance with Section IV.2 (Transfers) and shall be based on the Condition "B" prices in effect on the date of
65 physical inventory unless the inventorying Parties can provide sufficient evidence another Material condition applies. 66
COPYRIGHT© 2005 by Council of Petroleum Accountants Societies, Inc. (COPAS) 14
0 COPAS 2005 Accounting Procedure Recommended by COPAS, Inc.
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1. DIRECTED INVENTORIES
Physical inventories shall be performed by the Operator upon written request of a majority in working interests of the Non-Operators
(hereinafter, «directed inventory"); provided, however, the Operator shall not be required to perform directed inventories more frequently
than once every five (5) years. Directed inventories shall be commenced within one hundred eighty (180) days after the Operator receives
written notice that a majority in interest of the Non-Operators has requested the inventory. All Parties shall be governed by the results of
any directed inventory.
Expenses of directed inventories will be borne by the Joint Account; provided, however, costs associated with any post-report follow-up
10 work in settling the inventory will be absorbed by the Party incurring such costs. The Operator is expected to exercise judgment in keeping
11 expenses within reasonable limits. Any anticipated disproportionate or extraordinary costs should be discussed and agreed upon prior to
12 commencement of the inventory. Expenses of directed inventories may include the following:
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performing the inventory or a rate agreed to by the Parties pursuant to Section I.6.A (General Afatters). The per diem rate shall also
be applied to a reasonable number of days for pre-inventory work and report preparation.
18 B. Actual transportation costs and Personal Expenses for the inventory team.
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20 C. Reasonable charges for report preparation and distribution to the Non-Operators.
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Physical inventories that are not requested by the Non-Operators may be perfonned by the Operator, at the Operator's discretion. The
expenses of conducting such Operator-initiated inventories shall not be charged to the Joint Account.
29 B. NON-OPERATORINVENTORIES
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Subject to the terms of the Agreement to which this Accounting Procedure is attached. the Non-Operators may conduct a physical
inventory at reasonable times at their sole cost and risk after giving the Operator at least ninety (90) days prior written notice. The
Non-Operator inventory report shall be furnished to the Operator in writing within ninety (90) days of completing the inventory
fieldwork.
36 C. SPECIAL INVENTORIES
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The expense of conducting inventories other than those described in Sections V.l (Directed bll'entories), V.2.A (Operator
Inventories). or V.2.B (Non-Operator Inventories). shall be charged to the Party requesting such inventory; provided. however,
inventories required due to a change of Operator shall be charged to the Joint Account in the same manner as described in Section
V.l (Directed Inventories).
COPYRIGHT© 2005 by Council of Petroleum Accountants Societies, Inc. (COPAS)
15
EXHIBIT"D"
Attached to and made a part of that certain Model Fmm Operating Agreement ("Agreement"), dated June 1, 2014, by and between EP Energy E&P Company, L.P., as Operator, and T. C.
Craighead & Company, eta!, as Non-Operators, covering Section 2, Township 3 South, Range 5 West, Duchesne County, Utah ("Contract Area").
INSURANCE
I. Insurance Maintained by Operator.
Operator shall carry and maintain the following insurance for the benefit of the Joint Account:
A. Workers' Compensation Insurance to provide statutmy coverage under the Workers' Compensation laws of the state in which the Contract Area is located.
B. If applicable, coverage under U.S. Longshore and Harbor Workers' Act, extended to the Outer Continental Shelf.
C. Employer's Liability Insurance (including Occupational Disease coverage) in the amount of One Million and No/100 Dollars ($1,000,000.00) for Each Accident, Each Employee, and Policy Limit for the accidental injury or death of one or more employees.
A waiver of subrogation in favor of all Non-Operators shall be provided, and if requested, a Certificate of Insurance shall be issued evidencing the above coverages, limits and waiver of subrogation endorsement.
Operator may, at its own expense, acquire such additional insurance as it may deem necessary to protect its own interest against claims, losses, damages or destruction to property arising out of operations hereunder.
No other insurance shall be carried or provided by Operator for the Joint Account. However, if agreed upon in advance and/or as required by contract, Operator provides insurance coverage on behalf of the Joint Account, Non-Operator(s) shall be billed for their proportionate share of the insurance cost.
Losses not covered by insurance required herein or in excess of the limits set forth above, shall be borne by the parties in proportion to their respective interests and shall be charged to the Joint Account.
II. Insurance Maintained by Non-Operator.
Each Non-Operator may, at its own expense, acquire and maintain, and for its own account, such insurance as it may deem necessary to protect its interest against claims, losses, damages, or destruction to property or the environment arising out of operations hereunder.
Where Non-Operator maintains Control of Well Insurance on its behalf, a Certificate oflnsurance evidencing such coverage shall be issued to Operator, and shall state that Operator is provided a waiver of subrogation under coverage. In addition, coverage shall remain in full force and effect for the duration of the Joint Operating Agreement.
EXHIBIT"E"
Attached to and made a part of that certain Model Form Operating Agreement, dated June I, 2014, by and between EP Energy E&P Company, L.P., as Operator, and T. C. Craighead & Company, eta!, as Non-Operators, covering Section 2, Township 3 South, Range 5 West,
Duchesne County, Utah ("Contract Area").
GAS BALANCING AGREEMENT
1. Owner~hip of Gas Production (a) It is the intent of the parties that each party shall have the right to take in kind and separately dispose of its proportionate share of gas (including casinghead gas) produced fi·om each Well or Wells, on acreage ("Contract Area") covered by the Operating Agreement to which this Exhibit is attached ("Operating Agreement").
(b) Operator shall control the gas production and be responsible for administering the provisions of this Agreement and shall make reasonable efforts to deliver or cause to be delivered gas to the patties' gas purchasers as may be required in order to balance the accounts of the pmties in accordance with the provisions herein contained. For purposes of this Agreement, Operator shall maintain production accounts of the parties based upon the number ofMCF and MMBtu actually contained in the gas produced from a pmticular Well for each pmty's account regardless of whether sales of such gas are made on a wet or dry basis. All references in this Agreement to quantity or volume shall refer to the number of MMBtu contained in the gas sti'eam. Toward this end, Operator shall periodically determine or cause to be dete1mined the Btu content of gas produced from each Well on a monthly basis and under standard conditions pursuant to methods customarily used in the industry and in accordance with the governing regulatory agency.
2. Balancing of Production Accounts (a) Any time a pmty, or such party's purchaser is not taking or marketing its full share of gas produced from a particular Well ("non-marketing party"), the remaining parties ("marketing" parties) shall have the right, but not the obligation, to produce, take, sell and deliver for such marketing parties' accounts, in addition to the full share of gas to which the marketing parties are othe1wise entitled, all or any pmtion of the gas attributable to a non-marketing patty. (Gas attributable to a non-marketing party, taken by a marketing pm·ty, is referred to in this Agreement as "overproduction".) If there is more than one mm·keting pmty taking gas attributable to a non-marketing pmty, each marketing patty shall be entitled to take a non-marketing pmty's gas in the ratio that such marketing pmty's interest in production bears to the total interest in production of all marketing patties.
(b) A pmty that has not taken its proportionate share of gas produced from any Well ("Underproduced Party") shall be credited with gas in storage equal to its share of gas produced but not taken, less its share of gas used in lease operations, vented or lost ("underproduction"). Such Underproduced Party, upon giving timely written notice to Operator, shall be entitled, on a monthly basis beginning the month at least thirty (30) days following receipt of notice, to produce, take, sell and deliver, in addition to the full share of gas to which such party is otherwise entitled, a quantity of gas ("make-up gas") equal to fifty percent (50%) of the total share of gas attributable to all pmties having cumulative overproduction (individually called "Overproduced Pmty"). Such make-up gas shall be credited against such Underproduced Pmty's accrued underproduction in order of accrual. Notwithstanding the foregoing and subject to subsection (e) below: (i) an Overproduced Party shall never be obligated to reduce its takes to less than fifty percent (50%) of the quantity to which such pmty is otherwise entitled, and (ii) during the months of November, December, January and February, twenty-five (25%) of each Overproduced Party's takes of gas produced from the Well.
(c) Ifthere is more than one Underproduced Party desiring make-up gas, each such Underproduced Pmty shall be entitled to make-up gas in the ratio that such pm·ty's
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interest in production bears to the total interest in production of all parties then desiring make-up gas. Any potiion of the make-up gas to which an Underproduced Patiy is entitled and which is not taken by such Underproduced Party may be taken by any other Underproduced Patiy(ies).
(d) If there is more than one Overproduced Party required to furnish make-up gas, each such Overproduc;ed Patiy shall furnish make-up gas in the ratio that such patiy's interest in production bears to the total interest in production of all patiies then required to furnish make-up gas. Except as provided in (e) below, each Overproduced Pm·ty in any Well shall be entitled, on a monthly basis, to take its full share of gas less its share of the make-up gas then being produced from the particular Well in which it is overproduced.
(e) If Operator in good faith believes that an Overproduced Party has recovered one hundred percent (100%) of such Overproduced Party's shm·e of the recoverable reserves fi·om a Well such Overproduced Party, upon being notified in writing of such fact by Operator, shall cease taking gas from such Well and the remaining parties shall be entitled to take one hundred percent (100%) of such production until the accounts of the patiies are balanced. Thereafter, such Over-produced Patiy shall again have the right to take its share of the remaining production, if any, in accordance with the provisions herein contained. If such party disagrees with Operator's estimate of recoverable reserves, it shall notifY Operator in writing within thirty (30) days of receipt of the contested notice and Operator shall employ a recognized independent petroleum engineering firm ("engined') to estimate the remaining gas recoverable fi·om such Well. The determination of such engineer shall be binding on all parties and shall not be subject to judicial or administrative challenge or appeal. If such engineer's estimate of recoverable gas is less than or equal to 120 percent of the Operator's estimate, the challenging party shall pay the costs of obtaining the engineer's estimate. If such engineer's estimate of recoverable gas is greater than 120 percent of the Operator's estimate, the costs of obtaining such engineer's estimate shall be charged to the joint account of all patiies. If actual production for at least twelve (12) months indicates that Operator's prior estimate restricting a party's takes was incotTect, such pat·ty shall have the right to request the Operator to reconsider and such reconsideration may be contested as set forth above.
3. Cash Balancing upon Depletion (a) If gas production fi·om a Well ceases and no attempt is made to restore production (or substitute therefor) within sixty (60) days, Operator shall distribute, within ninety (90) days of the date the Well last produced gas, a statement of net unrecouped underproduction and overproduction and the months and yem·s in which such unrecouped production accrued ("final accounting").
(b) Within thirty (30) days of receipt of such final accounting, each Overproduced Party shall remit to the Operator proportionately as to their share of underproduction, a sum of money (which sum shall not include interest) equal to the amount actually or constructively received by Overproduced Party for sales during the month(s) of overproduction, calculated in order of accrual but less applicable taxes and reasonable costs ofmm·keting and transporting such gas actually paid by such Overproduced Party. Such remittance shall be based on number of MCF of overproduction and shall be accompanied by a statement showing volumes and prices for each month with accrued unrecouped overproduction. The Operator shall distribute the total of such amounts so collected atnong the Underproduced Parties in the propotiion of such latter parties' underperformance.
(c) If a portion of the party's gas is taken for its own use and a portion thereofis sold, the gas value for accounting between/among the patties will be based on the price received simultaneously by such pm·ty for gas sold fi·om the Well(s). During periods in which a party is taking gas for its own use and making no sales, gas so taken will be valued at the maximum price which such patiy could have received for such gas if actually delivered under such party's contract, or, if none, the weighted average price
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received simultaneously by all other parties for gas sold fi·om the Well(s). In either instance the value so determined for gas so used will be deemed to have been constructively received by such using party. Anything herein to the contrary notwithstanding, the Underproduced Party shall not be entitled to receive fi·om the Overproduced Party a payment greater than the amount the Underproduced Party would have been entitled to receive if the sale had been made under the contract of the Underproduced Party, if any. Each party agrees to maintain complete records of gas sold and price received so Operator's computations can be made. Operator shall rely on statements furnished and assumes no liability with respect to any such payment(s) received and distributed (unless such payment is attributable to Operator's overproduction), in accordance with the provisions herein contained.
(d) In determining the amount of overproduction for which settlement is due, production taken during any month by an Underproduced Patty in excess of such Underproduced Party's share shall be treated as make-up and shall be applied to reduce prior deficits in the order of accrual of such deficits.
(e) If refunds are later required by any governmental authority, each pat·ty shall be accountable for its respective share of such refunds as finally balanced hereunder.
4. Deliverability Tests At the request of any party, Operator may produce an individual well stream for a Deliverability test not to exceed seventy-two (72) hours in duration (or such longer period of time as may be mutually agreed upon by the parties) if required under such requesting party's gas sales or transportation contract.
5. Nominations and Pipeline Imbalances Each party shall, on a monthly basis, give Operator sufficient time and data to confirm such party's nomination to the transporting pipeline(s) or, if Operator has so agreed, to nominate such pmty's gas. If, for any reason, a party taking in kind wishes to change its nomination, such party shall give the Operator notice one day (I) prior to such change. Operator shall make reasonable efforts to keep each patty taking in kind informed of changes in production volumes that occur during each month. Any party receiving notice of a failure of a mat·ket or the curtailment of transportation on a pipeline shall immediately notifY the other affected parties of such occuJTence, so that appropriate adjustments in production or nominations may be made. Each party (including Operator) nominating gas shall make its reasonable best effotis to comply with any Predetermined Allocation (PDA) or Operational Balancing Agreement (OBA) then in effect in an effmt to avoid pipeline imbalances and any fees and/or penalties associated therewith.
Should actual production not equal total nominations (except for normal day-to-day fluctuations in production or markets), Operator shall attempt to limit pipeline imbalances:
1) On a Well by Well basis, when nominations exceed production, Operator shall not be required to confirm nominations that exceed a patty's working interest share of production, and
2) On a Well by Well basis, when production exceeds nominations, Operator shall use its reasonable efforts to curtail production to the level of each patty's nomination.
Except as and to the extent caused by Operator's gross negligence or willful misconduct, Operator shall not be responsible for any damage claimed by any party or third party or for any fees and/or penalties associated with imbalances charged by any pipeline to any party(ies).
6. Statements On or before the twenty-fifth (25th) day of the month following the month of production,
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each party taking gas shall furnish or cause to be furnished to Operator a statement of gas taken expressed in terms ofMCF. If actual volume information sufficient to prepare such statement is not made available to the taking party in sufficient time to prepare it, such taking patiy shall nevertheless furnish a statement of its good faith estimate of volumes taken. Within thirty (30) days of the receipt of all such statements, Operator shall furnish to each party a statement of the gas balance among the parties, including the total quantity of gas produced form each formation in each well, the portion thereof used in operations, vented or lost, and the total quantity delivered for each party's account. Any error or discrepancy in Operator's monthly statement shall be promptly repmied to Operator, and Operator shall make a proper adjustment thereof within thirty (30) days after final determination of the correct quantities involved; provided, however, that if no enors or discrepancies are repotied to Operator within two (2) years from the date of any statement, such statement shall be conclusively deemed to be conect. Additionally, within thirty (30) days from the end of each calendar year, non-operators shall furnish to Operator, for the sole purpose of establishing records sufficient to verify cash balancing values, a statement reflecting amounts actually received on a monthly basis for the calendar year preceding the immediately concluded calendar year. Operator shall not allow a party to produce gas for its account during any month when such party is delinquent in so furnishing the monthly or annual statements.
7. Payment of Taxes Each patiy taking gas shall pay or cause to be paid any and all production, severance, utility, sales, excise, or other taxes due on such gas.
8. Operating Expenses The operating expenses are to be bome as provided in the Operating ~greement, regardless of whether all parties are selling or using gas or whether the sales and use of each are in proportion to their respective interest in such gas. Nothing herein shall change or affect each party's obligations to pay its propmiionate share of all costs and liabilities incurred in any Well(s) pursuant to the Operating Agreement to which this agreement is attached.
9. Overproducing Allowable Each party shall give Operator sufficient time and data to enable Operator to make appropriate nominations, forecasts and/or filings with the regulatmy bodies having jurisdiction to establish allowables. Each patiy shall at all times regulate its takes and deliveries from the Contract Area so that the Well(s) covered hereby shall not be cmiailed for over-producing the allowable production assigned thereto by the regulatory body having jurisdiction.
10. Payment of Leasehold Burdens At all times while gas is produced from the Contract Area, each marketing party agrees to make appropriate settlement of all royalties, overriding royalties and other payments out of or in lieu of production for all gas such patiy is taking or delivering to a purchaser exclusive of gas used in operations, vented or lost, and each party agrees to indemnify and hold each other party harmless from and against all claims relating thereto.
11. Application of Agreement If separate ownership interests exist in different formations, the provtstons of this Agreement shall be separately applicable and shall constitute a separate agreement with respect to gas produced from each formation in each Well for that formation located on the Contract Area.
12. Term This Agreement shall terminate when gas production under the Operating Agreement pennanently ceases and the accounts of the patiies are finally settled in accordance with the provisions herein contained.
13. Operator's Liability
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Except as otherwise provided herein, Operator is authorized to administer the provisions of this Agreement, but shall have no liability to the other parties for losses sustained or liability incurred which arise out of or in connection with the performance of Operator's duties hereunder so long as it acts in good faith and as would a reasonably prudent Operator in the same or similar circumstances.
14. Audits Each party hereto agrees to maintain monthly records as to the volumes and prices of gas sold, the volumes of gas used in its own operations, and the royalty paid on such gas used by such party in its own operations. Any Underproduced Party shall have the right for a period of two (2) years after receipt of payment pursuant to a final accounting and after giving written notice to all patties, to audit an Ovetproduced Party's accounts and records relating to such payment. Any Overproduced Party shall have the right for a period of two (2) years after tender of payment for unrecouped volumes and upon giving written notice to all patties, to audit an Underproduced Party's records as to volumes. The patty conducting such audit shall bear its costs of the audit. Additionally, Operator shall have the right for a period of two (2) years after receipt of an annual statement from a NonOperator under paragraph 6 after giving written notice to the affected non-operator, to audit such Non-Operator's accounts and records relating to such payment. Costs of such audit shall be borne by the Joint Account.
15. Successors and Assigns The terms, covenants, and conditions of this Agreement shall be binding upon and shall inure to the benefit of the parties and to their respective successors and assigns, and may be assigned in whole or in part from time to time; provided, however, that (a) any such assignment shall be made subject to this Agreement and as among the parties shall not be valid without the express written acceptance of the terms of this Agreement by the Assignee; (b) the Assignee shall acquire such interest subject to any overproduction and/or underproduction imbalances existing at such time as well as any cash balancing obligation created thereby, and (c) no such assignment shall relieve the Assignor from any obligation to the other patiies with respect to any overproduction taken by Assignor prior to such assignment.
16. Liquefiable Hydrocarbons Not Covered under Agreement The parties shall share proportionately in and own all liquid hydrocarbons recovered with the gas by lease equipment in accordance with their respective interests, however, the patties taking or marketing the gas shall own all of the gas taken or delivered to their respective purchasers and shall have the right to all liquids removed from the gas by off lease processing.
17. Arbitration Any controversy or claim arising out of' or relating to this Agreement, or the breach thereof which cannot be settled by negotiation, shall be settled by mediation administered by the American Arbitration Association in accordance with its Commercial Mediation Rules. Should the matter not be resolved by mediation within ninety (90) business days following the submittal of the matter to mediation, then the parties hereto shall be free to seek other dispute-resolution procedures, including, without limitation, at"bitration (upon the agreement of the parties) or litigation.
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EXHIBIT"F"
Attached to and made a part of that certain Model Form Operating Agreement ("Agreement"), dated June 1, 2014, by and between EP Energy E&P Company, L.P., as Operator, and T. C.
Craighead & Company, et al, as Non-Operators, covering Section 2, Township 3 South, Range 5 West, Duchesne County, Utah ("Contract Area").
THIS PAGE LEFT BLANK INTENTIONALLY
THERE IS NO EXHIBIT "F" TO THIS AGREEMENT.
EXHIBIT"G"
Attached to and made a pmi of that certain Model Form Operating Agreement ("Agreement"), dated June 1, 2014, by and between EP Energy E&P Company, L.P., as Operator, and T. C.
Craighead & Company, et al, as Non-Operators, covering Section 2, Township 3 South, Range 5 West, Duchesne County, Utah ("Contract Area").
THIS PAGE LEFT BLANK INTENTIONALLY
THERE IS NO EXHIBIT "G" TO THIS AGREEMENT.
AAPL- FORM 610RS- 1989
ExhibituH" MODEL FORM RECORDING SUPPLEMENT TO
2 OPERATING AGREEMENT AND FINANCING STATEMENT
THIS AGREEMENT, entered into by and between _____ ___,E.,.P"-"E"'N'-"E'-"R"G"Y'--"E"'&'-'P'-'C"O""MP!!.!A"-'NY-'-"'-'L"'."'P~. --------~ 4 hereinafter referred to as "Operator," and the signatory party or parties other than Operator, hereinafter referred to
5 individually as 'Non-Operator," and collectively as "Non-Operators."
6 \VHEREAS, the parties to this agreement are owners of Oil and Gas Leases and/or Oil and Gas Interests in the land
7 identified in Exhibit "A" (said land, Leases and Interests being hereinafter called the "Contract Area"), and in any instance in
8 which the Leases or Interests of a party are not of record, the record 0\vner and the party hereto that owns the interest or
9 rights therein are reflected on Exhibit "A";
10 WHEREAS, the parties hereto have executed an Operating Agreement dated ______ _,J,_,u"'n"'e-"1~2,0"124 _______ _
11 (herein the "Operating Agreement"), covering the Contract Area for the purpose of exploring and developing such lands,
12 Leases and Interests for Oil and Gas; and
13 \VHEREAS, the parties hereto have executed this agreement for the purpose of imparting notice to all persons of the
14 rights and obligations of the parties under the Operating Agreement and for the further purpose of perfecting those rights
15 capable of perfection.
16 NO\V, TIIEREFORE, in consideration of the mutual rights and obligations of the parties hereto, it is agreed as foiiO\vs:
17 1. This agreement supplements the Operating Agreement, which Agreement in its entirety is incorporated herein by
18 reference, and all tem1s used herein shall have the meaning ascribed to them in the Operating Agreement.
19 2. The parties do hereby agree that:
20 A. 1l1e Oil and Gas Leases and/or Oil and Gas Interests of the parties comprising the Contract Area shall be subject
21 to and burdened with the terms and provisions of this agreement and the Operating Agreement, and the parties do
22 hereby commit such Leases and Interests to the petformance thereof.
23 B. The exploration and development of the Contract Area for Oil and Gas shall be governed by the tenns and
24 provisions of the Operating Agreement, as supplemented by this agreement.
25 C. All costs and liabilities incurred in operations under this agreement and the Operating Agreement shall be borne
26 and paid, and all equipment and materials acquired in operations on the Contract Area shall be 0\Vned, by the parties
27 hereto, as provided in the Operating Agreement.
28 D. Regardless of the record title ownership to the Oil and Gas Leases and/or Oil and Gas Interests identified on
29 Exhibit "A," all production of Oil and Gas from the Contract Area shall be owned by the parties as provided in the
30 Operating Agreement; provided nothing contained in this agreement shall be deemed an assignment or cross-assignment
31 of interests covered hereby.
32 E. Each patty shall pay or deliver, or cause to be paid or delivered, all burdens on its share of the production fi·om the
33 Contract Area as provided in the Operating Agreement.
34 F. An overriding royalty, production payment, net profits interest or other burden payable out of production hereafter
35 created, assignments of production given as security for the payment of money and those overriding royalties, production
36 payments and other burdens payable out of production heretofore created and defined as Subsequently Created Interests
37 in tl1e Operating Agreement shall be (i) home solely by the party whose interest is burdened therewith, (ii) subject to
38 suspension if a party is required to assign or relinquish to another party an interest which is subject to such burden, and
39 {iii) subject to the lien and security interest hereinafter provided if the party subject to such burden fails to pay its share
40 of expenses chargeable hereunder and under the Operating Agreement, aU upon the terms and provisions and in the
41 times and manner provided by the Operating Agreement.
42 G. The Oil and Gas Leases and/or Oil and Gas Interests which are subject hereto may not be assigned or transferred
43 except in accordance with those terms, provisions and restrictions in the Operating Agreement regulating such transfers.
44 This agreement and the Operating Agreement shall be binding upon and shall inure to the benefit of the parties hereto,
45 and their respective heirs, devisees, legal representatives, and assigns, and the terms hereof shall be deemed to run with
46 the leases or interests included within the lease Contract Area.
47 H. The parties shall have the right to acquire an interest in renewal, extension and replacement leases, leases
48 proposed to be surrendered, wells proposed to be abandoned, and interests to be relinquished as a result of non-
49 participation in subsequent operations, all in accordance with the terms and provisions of the Operating Agreement.
SO I. The rights and obligations of the parties and the adjustment of interests among them in the event of a failure or
51 loss of title, each party's right to propose operations, obligations with respect to participation in operations on the
52 Contract Area and the consequences of a failure to participate in operations, the rights and obligations of the pruiies
53 regarding the marketing of production, and the rights and remedies of the parties for failure to comply with financial
54 obligations shall be as provided in the Operating Agreement.
55 I. Each party's interest under this agreement and under the Operating Agreement shall be subject to relinquishment
56 for its failure to participate in subsequent operations and each party's share of production and costs shall be reallocated
57 on the basis of such relinquishment, all upon the tenns and provisions provided in the Operating Agreement.
58 K. AU other matters with respect to exploration and development of the Contract Area and the ownership and
59 transfer of the Oil and Gas Leases and/or Oil and Gas Interest therein shall be governed by the terms and provisions of
60 the Operating Agreement.
61 3. Tite parties hereby grant reciprocal liens and security interests as follows:
62 A. Each party grants to the other parties hereto a lien upon any interest it now owns or hereafter acquires in Oil and
63 Gas Leases and Oil and Gas Interests in the Contract Area, and a security interest and/or purchase money security
64 interest in any interest it now owns or hereafter acquires in the personal property and fixtures on or used or obtained
65 for use in connection therewith, to secure performance of all of its obligations under this agreement and the Operating
66 Agreement including but not limited to payment of expense, interest and fees, the proper disbursement of all monies
67 paid under this agreement and the Operating Agreement, the assignment or relinquishment of interest in Oil and Gas
68 Leases as required under this agreement and the Operating Agreement, and the proper perfom1ance of operations under
69 this agreement and the Operating Agreement. Such lien and security interest granted by each party hereto shall include
70 such party's leasehold interests, working interests, operating rights, and royalty and overriding royalty interests in the
71 Contract Area now mmed or hereafter acquired and in lands pooled or unitized therewith or othenvise becoming subject
72 to this agreement and the Operating Agreement, the Oil and Gas when extracted therefrom and equipment situated
73 thereon or used or obtained for use in connection therewith (including, \vithout limitation, all wells, tools, and tubular
74 goods), and accounts (including, without limitation, accounts arising from the sale of production at the wdlhead),
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AAPL- FORM 6!0RS- 1989
I contract rights, inventory and general intangibles relating thereto or arising therefrom, and all proceeds and products of
2 the foregoing.
B. Each party represents and warrants to the other parties hereto that the lien and security interest granted by such
party to the other parties shall be a first and prior lien, and each party hereby agrees to maintain the priority of said lien
and security interest against all persons acquiring an interest in Oil and Gas Leases and Interests covered by this
6 agreement and the Operating Agreement by, through or under such party. All parties acquiring an interest in Oil and
Gas Leases and Oil and Gas Interests covered by this agreement and the Operating Agreement, whether by assignment,
merger, mortgage, operation of law, or otherwise, shaH be deemed to have taken subject to the lien and security interest
granted by the Operating Agreement and this instrument as to all obligations ·attributable to such interest under this
I 0 agreement and the Operating Agreement whether or not such obligations arise before or after such interest is acquired.
11 C. To the extent that the parties have a security interest under the Unifoml Commercial Code of the state in which
12 the Contract Area is situated, they shall be entitled to exercise the rights and remedies of a secured party under the Code.
13 The bringing of a suit and the obtaining of judgment by a party for the secured indebtedness shall not be deemed an
I4 election of remedies or othe~vise affect the lien rights or security interest as security for the payment thereof. In
15 addition, upon default by any party in the payment of its share of expenses, interest or fees, or upon the improper use of
16 funds by the Operator, the other parties shall have the right, without prejudice to other rights or remedies, to collect
I 7 fi·om the purchaser the proceeds from the sale of such defaulting party's share of Oil and Gas until the amount owed by
18 such party, plus interest, has been received~ and shall have the right to offset the amount O\\'ed against the proceeds from
19 the sale of such defaulting party's share of Oil and Gas. All purchasers of production may rely on a notification of default
20 from the non-defaulting party or parties stating the amount due as a result of the default, and all parties waive any
2I recourse available against purchasers for releasing production proceeds as provided in this paragraph.
22 D., If any party fails to pay its share of expenses within one hundred-twenty (120) days after rendition of a statement
23 therefor by Operator the non-defaulting parties) including Operator, shall, upon request by Operator, pay the unpaid
24 arnount in the proportion that the interest of each such party bears to the interest of all such parties. The amount paid
25 by each party so paying its shar~ of the unpaid amount shall be secured by the liens and security rights described in this
26 paragraph 3 and in the Operating Agreement, and each paying party may independently pursue any remedy available
27 under the Operating Agreement or otherwise.
28 E. If any party does not perfoml all of its obligations under this agreement or the Operating Agreement, and the
29 failure to perform subjects such party to foreclosure or execution proceedings pursuant to the provisions of this
30 agreement or the Operating Agreement, to the extent allowed by governing law, the defaulting party waivis any
31 available right of redemption from and after the date of judgment, any required valuation or appraisement of the
32 rnOJigaged or secured property prior to sale, any available right to stay execution or to require a marshalling of assets
33 and any required bond in the event a receiver is appointed. In addition, to the extent pem1itted by applicable law, each
34 party hereby grants to the other parties a power of sale as to any property that is subject to the lien and security rights
35 granted hereunder or under the Operating Agreement, such power to be exercised in the manner provided by applicable
36 law or otherwise in a commercially reasonable marmer artd upon reasonable notice.
37 F. The lien and security interest granted in this paragraph 3 supplements identical rights granted wtder the
3 8 Operating Agreement.
39 G. To the extent pemtitted by applicable law, Non-Operators agree that Operator may invoke or utilize the
40 mechanics' or materialmen's lien law of the state in which the Contract Area is situated in order to secure the payment
41 to Operator of any sum due under this agreement and the Operating Agreement for services perfonned or materials
42 supplied by Operator.
43 H. The above described security will be financed at the wellhead of the \\~II or wells located on tl10 Contract Area and
44 this Recording Supplement may be filed in the land records in the County or Parish in which the Contract Area is
45 located, and as a financing statement in all recording oftices required under the Unifoml Commercial Code or other
46 applicable state statutes to perfect the above-described security interest, and arty party hereto may file a continuation
47 statement as necessary under the Unifmm Commercial Code, or other state laws.
48 4. Titis agreement shall be effective as of the date of the Operating Agreement as above recited. Upon tem1ination of
49 this agreement and the Operating Agreement and the satisfaction of all obligations thereunder, Operator is authorized to file
50 of record in all necessary recording offices a notice of termination, and each party hereto agrees to execute such a notice of
51 termination as to Operator's interest, upon the request of Operator, if Operator has complied with all of its finartcial
52 obligations.
53 5. This agreement and the Operating Agreement shall be binding upon and shall inure to the benefit of the parties
54 hereto and their respective heirs, devisees, legal representatives, successors and assigns. No sale, encumbrance, transfer or
55 other disposition shall be made by any party of any interest in the Leases or Interests subject hereto except as expressly
56 pem1itted under the Operating Agreement artd, if pem1itted, shall be made expressly subject to this agreement and the
57 Operating Agreement and without prejudice to the rights of the other parties. If the transfer is pem1itted, the assignee of an
58 ownership interest in any Oil and Gas Lease shaH be deemed a party to this agreement and the Operating Agreement as to
59 the interest assigned from and after the effective date of the transfer of ownership; provided) however, that the other parties
60 shall not be required to recognize any such sale, encumbrance, transfer or other disposition for any purpose hereunder until
61 thirty (30) days after they have received a copy of the instrument of transfer or other satisfactory evidence thereof in writing
62 from the transferor or transferee. No assignment or other disposition of interest by a party shall relieve such party of
63 obligations previously incurred· by such party under this agreement or the Operating Agreement with respect to the interest
64 transferred, including without limitation the obligation of a party to pay all costs attributable to an operation conducted under
65 this agreement and the Operating Agreement in which such party has agreed to participate prior to making such assignment,
66 and the lien and security interest granted by Article VILB. of the Operating Agreement artd hereby shall continue to burden
67 the interest tro.nsfe1red to secure payment of any such obligations.
68 6. In the event of a conflict between the tenns and provisions of this agreement and the tem1s and provisions of the
69 Operating Agreement, then, as between the parties, the terms and provisions of the Operating Agreement shall control.
70 7. This agreement shall he binding upon each Non-Operator \vl1en this agreement or a counterpart thereof has been
71 executed by such Non-Operator and Operator notwithstanding that this agreement is not then or thereafter executed by all of
72 the parties to which it is tendered or which are listed on Exhibit "N' as owning an interest in the Contract Are3. or which
73 own. in fact, an interest in the Contract Area. Jn the event that any provision herein is illegal or unenforceable, the
74 remaining provisions shall not be affected, and shall be enforced as if the illegal or unenforceable provision did not appear herein.
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AAPL-FORM 610RS -1989
8. Other provisions.
2
4
6 EP ENERGY E&P COMPANY, L.P. , who has prepared and circulated this fmm for execution, represents and wanants that the fmm was printed from and, with tl1e exception(s) listed below, is identical to the AAPL Fonn 610RS-1989 Model Fonn Recording Supplement to Operating Agreement and Financing Statement, as published in computedzed fonn by
9 Fonns On-A-Disk, Inc. No changes, alterations, or modifications, otl1er than those made by strikethrough and/or inset1ion 10 and tl1at are clearly recognizable as changes in Al1icles as amended therein , have been made to tl1e fonn. 11
12
13 IN WITNESS WHEREOF, this agreement shall be effective as oftl1e __lg_ day of _______ J"'u"'n"e'------~ 14 , •• ,...lQ!L
15
16 ATTEST OR WITNESS:
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28 ATTEST OR WITNESS:
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40 ATTEST OR WITNESS:
OPERo\.TOR
EP Energy E&P Company. L.P.
By: ______ ~T~h~o~m~a~s~L~.!vl~u~ch~a~r~dL-______ _
Type or Pl'int Name
Title: ----~A=ge,.n"t-"a"nd"-"A"-tt.,oCLrnwee>v::J"iwn"'-F'-'a'-'c!..t ------Date: ___________________ _
Address: 1001 Louisiana St., Suite 2400. Houston, TX 77002
NON-OPERATORS
T. C. Craiohead & Company
By: ________________ _
Type or Print Name Title: __________________ _
Date: ___________________ _
Address: _.JPc,.J,JO~. !!B.!!ox~57!!6~. ,A""rd...,m!!.!!JOil.!'e,_, J,JO,K._7,_,3,4~0t,;2·:!JO:;t57L!6!_ ___ _
41 Slover Minerals L.P.
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51 ATTEST OR WITNESS:
By: _________________ ___
Type or Print Name Title: ___________________ _ Date: ___________________ _
Address: _ _,3,.6.:14L.R!>.\!.oy..,a.._I..,R.,o,ad,.,,4A.,m,.a.,,"'·il.,lo,..,_.T""X'-7"'9"'1"'09"-----
52 Broughton Petroleum Inc.
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62 ATTEST OR WITNESS:
By: ________________ _
Type or Print Name Title: ___________________ _
Date: ___________________ _
Address: __ _,P..,.O""-'. B,o"'x,_1.,3,8"'9,,_,S..,e.,a,ly"-' _.T..,X._7...,7.;,4.c74,_ ____ _
63 Devon Energy Production CompanY. L.P.
64
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66 67
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By: ________________________________ ___
Type or Print Name Title: __________________ _
Date: ___________________ _
Address: 333 West Shel'idan Ave., Oldahoma City, OK 73102
-3"
EXHIBIT "A"
Attached to and made a part of that certain Model Fonn Recording Supplement to that certain Model Form Operating Agreement ("Agreement"), dated June 1, 2014, by and between EP
Energy E&P Company, L.P., as Operator, and Linn Operating, Inc., as Non-Operator, covering Section 2, Township 3 South, Range 5 West, Duchesne County, Utah ("Contract Area").
I. Lands subject to this Agreement ("Contract Area"):
Township 3 South, Range 5 West, USM Section 2: All Containing 639.04 acres, more or less
All of the above lands being situated in Duchesne County, Utah.
II. Restrictions as to Depths and Fmmations:
Limited to the interval from the top of the Lower Green River formation (TGR3 marker) to the base of the Green River-Wasatch formations (top of Cretaceous), which base is defined as the stratigraphic equivalent of the Dual Induction Log depths of 16,720 feet in the Shell, Ute 1-18B5 well located in the S2NE4 of Section 18, Township 2 South, Range 5 West, U.S.M., and 16,970 feet in the Shell, Brotherson 1-11B4 well located in S2NE4 of Section 11, Township 2 South, Range 4 West, U.S.M.
III. Working interests of the parties in the Contract Area:
NAME OF PARTY VVOR1UNGINTEREST EP Energy E&P Company, L.P. 59.121597% Bill Barrett Corporation1 15.625668% Crescent Point Energy U.S. Corp.1 15.625668% QEP Energy Company1 8.803439% KKREP,LLC1 0.120689% J.P. FURLONG CO/ 0.120689% T. C. Craighead & Company 0.113146% Slover Minerals, L.P.1 0.113146% Broughton Petroleum Inc. 0.113146% Linn Operating, Inc. 0.066304% Croff Oil Company, Inc.1 0.063362% Argo Energy Partners, Ltd.1 0.056573% Dusty Sanderson1 0.056573%
TOTAL 100.000000%
If and to the extent any of the Patiies fail to execute this Agreement, and notwithstanding any other provision contained in this Agreement, EP Energy, as Operator, alone shall be responsible to bear all costs and expenses attributable to said non-executing Patiy's/Parties' interest(s) for purposes of this Agreement, but also shall be alone entitled to the benefits of any risk compensation award under separate agreement or by force pooling order of a governmental agency having jurisdiction over the Contract Area, until recoupment of all such borne costs and expenses plus said awm·d.
IV. Oil and gas leases and/or interests subject to this Agreement:
All burdens on production from oil and gas leases and/or interests within the Contract Area and subject to this Agreement shall be several, and each patiy shall pay or deliver, or cause to be paid or delivered, all burdens on production from the Contract Area due under the terms of the oil and gas leases which such party has contributed to this Agreement.
1 Subject to separate operating agreement(s), the terms and conditions which are separate and distinct from those contained in this Agreement. This Agreement shall neither be construed as creating or vesting any rights or obligations in, nor establishing contractual privity with, any other Non-Operator hereto relating to such separate agreements.
Page I of3
V. Addresses of Operator and Non-Operators:
Operator:
EP Energy E&P Company, L.P. Attn: Land Director- Altamont Asset 1001 Louisiana Street, Suite 2400 Houston, Texas 77002 Phone: (713)-997-1000
Non-Operators:
Bill Barrett Corporation Attn: Vice President, Land 1099 18th Street, Suite 2300 Denver, Colorado 80202 Phone: (303)-312-8544
Crescent Point Energy U.S. Corp. Attn: Manager, Land and Business Development 555 I ih Street, Suite 1800 Denver, Colorado 80202 Phone: (303)-382-6766
QEP Energy Company 1050 17th St., Suite 500 Denver, Colorado 80265 Phone: (303)-640-4287
J.P. FURLONG CO. P.O. Box 2357 Bismarck, North Dakota 58502
KKREP,LLC Attn: Kruise B. Kemp, President P.O. Box 80942 Billings, Montana 89108 Phone: (406)-200-7190
T. C. Craighead & Company P. 0. Box 576 Ardmore, Oklahoma 73402-0576 Phone: (580)-223-7470
Slover Minerals, L.P. 3614 Royal Road Amarillo, Texas 79109
Broughton Petroleum Inc. P. 0. Box 1389 Sealy, Texas 77474 Phone: (979)-877-0200
Linn Operating, Inc. 1999 Broadway Street, Suite 3700 Denver, Colorado 80202 Phone: (303)-999-4214
Page 2 of3
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Croff Oil Company, Inc. 16 Waterway Court The Woodlands, Texas 77380-2641 Phone: (303)-809-9195
Argo Energy Partners, Ltd. P.O. Box 1808 Corsicana, Texas 75151
Dusty Sanderson 7802 Bennington Amarillo, Texas 79119 Phone: (806)-681-0888
Page 3 of3
EXHIBIT "A-1" Attached to and made a part of that certain Model Form Recording Supplement to that certain Model Form Operating
Agreement ("Agreement"}, dated June 1, 2014, by and between EP Energy E&P Company, L.P., as Operator, andT. C. Craighead & Company, et al, as Non-Operators,
coverinQ Section 2, Township 3 South, RanQe 5 West, Duchesne County, Utah ("Contract Area").
Leases Contributed to this Agreement by EP Energy E&P Company, L.P.:
LEASE NO LI:::>::>UK LESSEE RECORDING
El Paso Production Oil & Gas, USA Book: M306
0001032733/999 Harriett Sam L.P. Page: 154
Entry: 374658
El Paso Production Oil & Gas, USA Book: M307
0001032734/999 Joseph Sam L.P. Page: 421 Entry: 376492
El Paso Production Oil & Gas, USA Book: M307
0001032735/999 Flora Scott Page: 418 L.P.
Entry: 376491
R. W. Slemaker, Jr. Attorney in Fact for the El Paso Production Oil & Gas, USA Book: M309
0001036491/999 Estate of R. W. Slemaker L.P.
Page: 743 Entry: 381287 Book: M339
0001060773/999 Lana Kemp Smith El Paso E&P Company, L.P. Page: 209 Entry: 419783 Book: M345
0001063492/999 Patricia M. Molhersead El Paso E&P Company, L.P. Page: 146 Entry: 423975 Book: M345
0001063523/999 Charlotte M. McGee El Paso E&P Company, L.P. Page: 140 Entry: 423972 Book: M346
0001063732/999 Michael Robert Page El Paso E&P Company, L.P. Page: 618 Entry: 425048 Book: M347
00010637 43/999 James Orval Thomas El Paso E&P Company, L.P. Page: 250 Entry: 425479 Book: M347
0001063761/999 Kenneth Cope Thomas El Paso E&P Company, L.P. Page: 113 Entry: 425374 Book: M347
0001063762/999 Alta Ann Johnsen El Paso E&P Company, L.P. Page: 572 Entry: 425849 Book: M347
0001063763/999 Jessup Otto Johnsen and Sally Johnsen El Paso E&P Company, L.P. Page: 561 Entry: 425844 Book: M346
0001063764/999 Norma W. Close El Paso E&P Company, L.P. Page: 780 Entry: 425194 Book: M347
0001063771/999 Burthell Mayhew and Sylvia Mayhew El Paso E&P Company, L.P. Page: 253 Entry: 425480
Allhora Fairbanks, as Attorney-in-Fact for Elva Book: M347 0001063772/999 Moulton Mayhew, a widow of Burdett Mayhew El Paso E&P Company, L.P. Page: 556
also known as Burdette Mayhew Entry: 425842 Book: M345
0001063821/999 Patricia A Close El Paso E&P Company, L.P. Page: 392 Entry: 424181 Book: M346
0001063822/999 J. Smith Investments, LLC El Paso E&P Company, L.P. Page: 201 Entry: 424604
Melvin D. Close, Jr., as Trustee of the Melvin Book: M346
0001063823/999 El Paso E&P Company, L.P. Page: 131 D. Close, Jr. Trust
Entry: 424520 Book: M345
0001063870/999 VeTar Energy, a General Partnership El Paso E&P Company, L.P. Page: 156 Entry: 423979 Book: M346
0001063878/999 Leo L. Brady and LaReta Brady El Paso E&P Company, L.P. Page: 290 Entry: 424713 Book: M347
0001063907/999 Jack D. Close, Sr. and Gay Lee Close, also El Paso E&P Company, L.P. Page: 810
known as Gayles Close Entry: 426076 Book: M350
0001063978/999 Michael Jessup Thomas El Paso E&P Company, L.P. Page: 691 Entry: 427602
Cheryl K. Learfield, Heir of Lloyd Gardner, Hei Book: M352
0001064029/999 El Paso E&P Company, L.P. Page: 66 of Melvin A Atwood and Vera Atwood Entry: 428106
Constance B. Gleave, as widow of V. Prentiss Book: M352
0001064030/999 El Paso E&P Company, L.P. Page: 90 Gleave
Entry: 428116
Page 1 of3
EXHIBIT "A-1" Attached to and made a part of that certain Model Form Recording Supplement to that certain Model Form Operating
Agreement ("Agreement"), dated June 1, 2014, by and between EP Energy E&P Company, L.P., as Operator, andT. C. Craighead & Company, et al, as Non-Operators,
coverinQ Section 2, Township 3 South, RanQe 5 West, Duchesne County, Utah ("Contract Area").
Erma Merkley, as Trustee of the Enna Merkley Book: M349
0001 064058/999 El Paso E&P Company, L.P. Page: 23 Property Trust, daled November23, 2009 Entry: 426538 Book: M349
0001 064059/999 Karen T. Gleave Swindle El Paso E&P Company, L.P. Page: 14 Entry: 426535 Book: M349
0001 064060/999 Mace T. Gleave, Heir of V. Prentiss Gleave El Paso E&P Company, L.P. Page: 17 Entry: 426536 Book: M349
0001064061/999 Kamelle Gleave, Heir of V. Prentiss Gleave El Paso E&P Company, L.P. Page: 20 Entry: 426537 Book: M349
0001064067/999 Jeff Gleave, Heir of V. Prentiss Gleave El Paso E&P Company, L.P. Page: 113 Entry: 426534 Book: M352
0001 064072/999 Ina VanTassell El Paso E&P Company, L.P. Page: 75 Entry: 428110
Calvin Gardner, Heir of the Estate of Melvin A. Book: M349
0001 064081/999 Atwood and Vera Atwood El Paso E&P Company, L.P. Page: 479
Entry: 426784 Book: M349
0001064082/999 Randy Anderson, Heir of Donna V. Anderson El Paso E&P Company, L.P. Page: 632 Entry: 426974 Book: M350
0001064083/999 Maury V. Gleave, Heir of V. Prentiss Gleave El Paso E&P Company, L.P. Page: 190 Entry: 427296
Kenneth leland Wilkinson and Jeanne Thorn Book: M349
0001 064087/000 Wilkinson, Trustees for the Jeanne and
El Paso E&P Company, L.P. Page: 652 Kenneth L. Wilkinson Trust dated the 31st day
of July, 1993 Entry: 427021
Christy Val Atwood, Heir of the Estate of Book: M350
0001064101/999 El Paso E&P Company, L.P. Page: 249 Melvin A. A~vood and Vera Atwood
Entry: 427360 Book: A601
0001064115/999 William D. Lewis and Glenda J. Lewis El Paso E&P Company, L.P. Page: 732 Entry: 427204 Book: M352
0001 064883/999 Paul L. McCulliss El Paso E&P Company, L.P. Page: 170 Entry: 428246 Book: M352
0001 064884/999 Karen Babcock El Paso E&P Company, L.P. Page: 150 Entry: 428237 Book: M352
0001 064887/999 Weston laMar Thomas El Paso E&P Company, L.P. Page: 153 Entry: 428238
DanielL. Gardner, Heir of lloyd Gardner, Heir Book: M352
0001 064890/999 El Paso E&P Company, L.P. Page: 173 of Melvin A. Atwood and Vera Atwood
Entry: 428247 Book: M353
0001 064938/999 Ann Hoffman, Heir of Donna V. Anderson El Paso E&P Company, L.P. Page: 108 Entry: 428905 Book: M353
0001064939/999 Edward Anderson, Heir of Donna V. Anderson El Paso E&P Company, L.P. Page: 139 Entry: 428919 Book: M347
0001065133/999 Lance James Page El Paso E&P Company, L.P. Page: 260 Entry: 425483 Book: M349
0001065146/999 Eric Thomas Page El Paso E&P Company, L.P. Page: 598 Entry: 426945 Book: M348
0001 065162/999 Dorothy !vie El Paso E&P Company, L.P. Page: 693 Entry: 426379
David Reese Voda, as Trustee of the David Book: M345 0001065172/999 Reese Veda Family Living Trust dated Januaf) El Paso E&P Company, L.P. Page: 178
26,1999 Entry: 424014 Book: A601
0001065188/999 Terri Lewis McCurdy, Personal Representative El Paso E&P Company, L.P. Page: 737
of the Estate of Valle Willis Lewis Entry: 427206 Book: M349
0001065197/999 Hollis Atwood, Heir of the Estate of Melvin A. El Paso E&P Company, L.P. Page: 630
Atwood and Vera Atwood Entry: 426973 Book: M358
0001 065592/999 Linda Gines El Paso E&P Company, L.P. Page: 47 Entry: 431901
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EXHIBIT "A-1" Attached to and made a part of that certain Model Form Recording Supplement to that certain Model Form Operating
Agreement ("Agreement"), dated June 1, 2014, by and between EP Energy E&P Company, L.P., as Operator, andT. C. Craighead & Company, et al, as Non-Operators,
covering Section 2, Township 3 South, Range 5 West, Duchesne County, Utah ("Contract Area").
Linda Hauskuecht, Lany S. Lewis, Sherry L. Book: M358
0001065615/999 Webb & Vicki Lewis, as Successor Trustees of El Paso E&P Company, L.P. Page: 403 the Sheldon J. Lewis Living Trust, dated Maret
28,2005 Entry: 432139 Book: M358
0001 065762/999 Covey Minerals, Inc. El Paso E&P Company, L.P. Page: 703 Entry: 432316 Book: M349
0001066094/999 Leila E. Pine El Paso E&P Company, L.P. Page: 491 Entry: 426789
Melvin Nord Atwood, Heir of the Estate of Book:A601
0001066095/999 El Paso E&P Company, L.P. Page: 739 Melvin A Atwood and Vera Atwood
Entry: 427207 Book: M346
0001066110/999 George G. Vaught, Jr. El Paso E&P Company, L.P. Page: 615 Entry: 425047 Book: M368
0001070063/999 Gordon T. Gliffiths El Paso E&P Company, L.P. Page: 131 Entry: 435495 Book: M369
0001070397/999 Theresa Scoggins El Paso E&P Company, L.P. Page: 170 Entry: 436410 Book: M374
0001072238/999 Gary E. Griffiths El Paso E&P Company, L.P. Page: 514 Entry: 441104 Book: M376
0001072479/999 Wayne S. Griffiths El Paso E&P Company, L.P. Page: 43 Entry: 442264 Book: M376
0001072510/000 Arthur Higgins Living Family Trust El Paso E&P Company, L.P. Page: 703 Entry: 442276 Book: M389
0001 073809/999 Linda Gines EP Energy E&P Company, L.P. Page: 71 Entry: 452305
Maxine Rowley, Personal Representative of Book: M399
0001074752/999 EP Energy E&P Company, L.P. Page: 602 the Estate of lila H. Sanford, Deceased
Entry: 458129 Book: M411
0001 076399/999 Club Oil and Gas, Ltd., LLC EP Energy E&P Company, L.P. Page: 688 Entry: 467779 Book: M411
0001076401/999 Raymond T. Duncan Oil Properties, Ltd. EP Energy E&P Company, L.P. Page: 692 Entry: 467781 Book: M411
0001 076403/999 Walter Duncan Oil, LLC EP Energy E&P Company, L.P. Page: 684 Entry: 467777 Book: M414
0001076889/999 Daniels. Sam and Penny B. Sam EP Energy E&P Company, L.P. Page: 117 Entry: 469375
Burthel Mayhew, NKIA Burthell Mayhew NK/ Book: M416 Burthel B. Mayhew, an Heir of Burdett
0001 076906/999 Mayhew, NK/A Burdette Mayhew, Deceased EP Energy E&P Company, L.P. Page: 316 and an Heir of Elva Moulton Mayhew, NK/A Elva Mayhew NK/A Susan Elva Moulton
Entry. 471160 Mayhew, Deceased
Book: M417 0001076934/999 Myrl M. Chugg, AKA Myrl Marie Chugg EP Energy E&P Company, L.P. Page: 610
Entry; 472309
Lareta Brady, NK/A Lareta Fay Brady F/KIA Lareta Mayhew, and Heir of Burdett Mayhew,
Book: M416
0001077087/999 NKIA Burdette Mayhew, Deceased and an EP Energy E&P Company, L.P. Page: 511 Heir of Elva Moulton Mayhew, NK/A Elva Mayhew NK/A Susan Elva Moulton Mayhew,
Entry; 471343 Deceased
Marl< Stephen Fairbanks, AKA MarkS. Book: M417 Fairbanks and Michael Ned Fairbanks, AKA
Michael N. Fairbanks as Successor Co-Personal Representatives of the Estate of
EP Energy E&P Company, L.P. Page: 247 Althora Fairbanks, and Heir of Burdett Mayhew, AKA Burdette Mayhew, Deceased and an Heir of Elva Moulton Mayhew, AKA Entry: 471853
Elva Mayhew, Deceased
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